We can only get to an ideal market with an uptick in new construction.
The first half of the year looked strong, with home sales and prices rising moderately on top of the gains experienced in 2015. Though prices will continue to rise, sales in the second half face more challenges. That’s because too few homes are available to keep up with demand. Total inventory on a year-over-year basis fell 6 percent in July, the 16th consecutive monthly decline. The supply level hit 4.7 months. In contrast, when home prices were falling several years ago, the supply hovered between 10 and 12 months.
The most recent housing crisis was the result of a collapse in demand, which led to depressed home prices and rising foreclosures. The next housing “crisis” will be due to a collapse in supply.
As employment strengthens, more households would like to buy, but there aren’t enough homes for sale. Home prices are rising at a higher rate than incomes are growing. While income has ticked up a percentage point or two, home prices have been growing by 5 or 6 percent a year. That in turn is creating an affordability crisis. Somewhat paradoxically, the home ownership rate—at 63.5 percent of households—is at a 50-year low even though mortgage rates, at about 3.5 percent, are also at their lowest level over the same time period.
Looking ahead, new-home sales will rise in the second half of the year as builders boost construction. We expect between 700,000 and 800,000 single-family starts in the year ahead. That’s a marked improvement from just a few years ago, when housing starts were a fraction of the historical norm. Still, we need about 1.5 million starts annually because of the country’s expanding population. In the meantime, affordability issues will likely hurt existing-home sales. That’s even more likely to be the case if interest rates start edging up. Only when supply reaches closer to six months—our definition of a balanced market—will we see the best of all worlds: rising new-home sales, rising existing-home sales, rising home prices, and a rising home ownership rate.
Credit to Lawrence Yun
Chief Economist and Senior Vice President of Research at the National Association of REALTORS®
What’s the best way to handle messy tenants – or should you?
Think back to the last time you rented a car. Before returning it, did you deodorize the floor mats, Windex the windows, give it a fresh paint job, and refill all the fluids?
No! And you probably complained about having to top off the gas tank.
Rental car companies don’t bat an eyelash when customers return vehicles in poor shape. They just clean them up, buff out the scratches, rent them out again, and get back to making money.
You, as a landlord, should have this very same mentality. It’s simply unrealistic to expect tenants to polish the countertops after every meal, wax the floors like Cinderella every night, and take immaculate care of every blade of grass in the yard.
I used to lose sleep over sloppy tenants.
I used to lose sleep over this. It would break my heart to see my properties in less-than-ideal condition, and I’d stress out about all the repairs and cleaning I’d need to do after the tenants moved out.
But eventually, I realized that cleaning up after sloppy tenants is just a fact of life for landlords. You can certainly withhold part or all of the deposit for damages, but in the grand scheme of things, if you’re playing your cards right, whatever money it costs is nothing compared with the amount you’re making off rent, appreciation, and tax savings. My life changed when I took my mind off tenant damage and instead focused on getting rich.
My life changed when I took my mind off tenant damage and instead focused on getting rich.
1. Focus on Big-picture Finances
If you find your blood boiling every time you inspect a recently vacated property, change your thinking.
Remember that, ultimately, your tenants are making you rich. For the entire time they rent from you, they’re paying your mortgage, covering your taxes, paying down your principal, and providing you with positive cash flow as your house appreciates. In return, they get a roof over their heads — one you can’t expect them to obsessively clean and maintain.
More often than not, tenants will take decent care of your property; at least, good enough for them to enjoy living in it. But don’t be shocked if, after they move out, your carpet is a little dirty, the walls could use a coat of paint, and the yard needs to be edged. Compared with how much cash your tenants gave you in rent as your home appreciated, fixing that stuff is a small drop in the bucket. At net, you’re still way ahead.
Worst-case scenario, if anything’s horribly expensive, you can always withhold your tenants’ deposits and make them pay for the necessary repairs.
2. Remove the Emotional Attachment
You might be renting out the home you grew up in, but this means nothing to your tenants. They are focused on making their own memories there.
I recommend staying away from the area as much as possible. Don’t drive by the house to reminisce about old times. You’re only going to feel bad when you see the landscaping isn’t how you want it and perhaps how tacky the lawn flamingos in the front yard are.
If you’re friends with the neighbors, do not listen to their gossip. Anything they tell you won’t be helpful. If the tenants are too quiet, they must be creepy and up to no good. If they’re too loud, they must be throwing parties.
3. Take Matters Out of Your Hands
I began my landlording career as a big proponent of the DIY approach. I was constantly running around like a madman from property to property, attempting to save money and address maintenance requests myself.
This didn’t last long, though. The final straw was when it took me three trips to Home Depot and about $500 to install a simple shelf in one of my homes — when I could have paid my contractor $100 to do it correctly on the first try. From that day on, I knew that adding “handyman” to my résumé wasn’t worth the fuss, and I started hiring pros.
Whether it’s repairs throughout the year or a deep cleanse after tenants move out, hire someone else to do the dirty work. Go out to dinner with your family instead.
Since learning to love sloppy tenants, my life as a landlord has become infinitely less stressful. Spills on the carpet and nicks on the walls aren’t the end of the world; they’re a part of life.
Take a deep breath, change your mentality, and be grateful that your sloppy tenants make you tens of thousands in appreciation, mortgage pay down, tax savings, and rental income each year.
Credit to the Guest Author – Mike Kalis
An entrepreneur at heart, CEO Mike Kalis leads the team at Marketplace Homes, a Detroit-based brokerage that specializes in new construction sales and property management. Marketplace has sold more than $1.5 billion in new construction homes, gained a controlling interest in more than 2,000 single-family properties, and been a four-time Inc. 5000 list awardee.
Locks are a property’s first line of defense. Before the alarm goes off, there is a small piece of metal keeping someone from breaking in.
But for a rental property, locks are so much more. They are a landlord’s or property manager’s way of assigning and revoking access. If someone moves out, they should not be able to get back into the property.
When a new tenant arrives, they should have complete access to their new home. That requires having old keys returned, rekeying, and having new keys made — and that is if the lock does not break.
With so many things to consider, how do you go about choosing the right lock?
1. Frequency of Use
A big concern with the frequency of a lock’s use is the amount of wear that the metal gets. These devices work from metal sliding past metal. As a result, the more the lock is used, the faster it wears out and needs servicing. On a property with many renters, you may want to consider getting a commercial-grade mortise lock. These devices stand up to a higher frequency of handle and key turns, and the components are easy to replace and repair if anything in the lock brakes.
2. Rekeying
There is a need to rekey the locks with every turnover in renters. Certain locks, such as any Kwikset SmartKey cylinder, are easy to rekey. These locks are made for deadbolts, handles, and knobs. The ease of rekeying allows you to change the key that works with these locks quickly and without calling a locksmith. The problem with items such as the SmartKey or the U-Change lock is that there is often a compromise in the security of the lock.
The U-Change Lock has a bypass that allows anyone to reset the lock to any key blank they can fit in the keyway. With security products, convenience often comes at the expense of safety.
3. Key control
A big issue with renting is that key control goes out the window. When you cannot control the key, you may need a lock change instead of simply rekeying. Once you give someone a key, it is your best guess what they do with it. Even a key with an impressioned “DO NOT DUPLICATE” message does little to protect the key from being copied at the local hardware store.
Many key duplicators are self-service machines, meaning that no one will see your message. And even if they did, many service techs at big box stores don’t care.
The answer to this dilemma is a lock with a patented key. These locks cannot have a key made without the registered lock owner approaching a locksmith or another register key distributor of the company. No one will be making keys without you if you make this investment. (Though industrious criminals could buy patent breaker keys and hand file them, this is not a concern for most landlords.)
4. Security
Having a lock that provides the property some security is essential. What is up to you is how much you care about said security. The base level of security is a lock on the front door. From there you add locks.
The next step is investing in locks that are harder to overwhelm. You want something with some level of anti-drill protection and with bump-key resistance. You may install an anti-drill plate to stand up to drills. They spin freely so that a drill bit cannot get a bite on the metal. They may also have a hardened steel pin that deflects a standard drill bit.
For bump-key resistance, you want security pins. Be wary of Kwikset and Schlage products that make this proclamation, as both have had products that claimed to be bump-proof, which was shown to be false.
For protection against forced entry from kicks and battering rams, focus more on the door and doorjamb than on the lock.
Top Brands
All of these companies have different lock models with different capabilities. Each lock is going to have different strengths and weaknesses which may not always line up with the brand’s overall track record. These are my favorite lock companies, in order:
ASSA-Abloy
Evva
Medeco
RR Brink
Mul-T-Lock
Corbin Russwin
Yale
Baldwin
Schlage
Kwikset
Now that you know what to look for in a lock, all you need to decide is what matters most to you. This does not have to be anything as heartless as saying that security does not matter. All you have to do is weigh the risks.
Is there a crime problem in your area?
Does the crime often include burglary, property theft, breaking and entering, etc.?
There are more ways to improve your security than just your locks. When it comes from threats that a rental property faces, the best place for security to start is often with key control.
Credit to the Guest Author – Ralph Goodman
Ralph Goodman is a professional writer and the resident expert on locksmith topics such as and security over at the Lock Blog. The Lock Blog is a great resource to learn about keys, locks and safety. They offer tips, advice and how-to’s for consumers, locksmiths, and security professionals.
Welcome back to the three-part series: A Beginner’s Guide to Multifamily Investing. If you haven’t already, read Part 1: How to Buy a Multifamily Rental Property.
Why would you want to increase the value of your small multifamily investment property after you emptied your pockets just to purchase it?
First and foremost, you may be able to increase the rent and/or your property value, either of which will further increase your total borrowing power. With value-add investment, you have the option to implement any of the following strategies at a leisurely pace to improve your property incrementally over time. The associated expense is simply the cost of opportunity.
1. Make Repairs and Improvements
If you have an outdated property that needs cosmetic work or modernization, if you revive the property, it is likely that you could dramatically increase the rent. The rental income from outdated units will land somewhere between modern rates and those from its original era. But an upgraded unit can fetch market rates.
My own strategy is predicated largely on acquiring historic rental properties that need to be improved and then bringing them to the top tier of my local market rents.
2. Increase the Rentable Square Footage
If there are common areas in your property, it is very difficult to capture their true value in rent. Whether you give the key to the hallway closet to a tenant or open that space directly into one of the units, increasing the square footage of personal area will also allow you to increase your rentable square footage and total rental income.
3. Subdivide or Combine Units
This strategy can add value if a property is not the right size or configuration to suit the demographic makeup of its market.
If you have a 3,000 sq ft unit, you might consider splitting it into two 1,500 sq ft units. They will be easier to rent because the total monthly cost will be significantly lower to each tenant and will subsequently reach a larger segment of the population. This will decrease vacancy and may also increase your Gross Scheduled Income.
4. Decrease Expenses
Accounting, advertising, insurance, lawn maintenance, legal fees, licenses, property management, repairs, and maintenance all add up. Anything that you can do to decrease any of these expenses without sacrificing the quality of the property is all money in your pocket.
5. Pass Expenses to the Tenants
Because gas, water, and electricity are all consumable resources that can be used variably by tenants, it is appropriate to have them pay as much of their utility expense as the market will bear in your area.
If the infrastructure of your property is not already metered separately, consider doing so. There is an entire industry built around sub-metering behind your master meter to help allocate expenses to your tenants fairly.
6. Decrease Property Taxes
Property taxes fuel the public improvements that make your market a desirable place to live; you want to pay your taxes to keep this cycle flowing, but you don’t want to pay more than your share. If you are able to convince your local appraisal district to lower its book value of your property on the tax rolls, it will noticeably decrease your overall property tax expense.
Evaluate the properties surrounding your house that are similar to craft an argument that illustrates to the authorities how they have over-assessed your property in relation to your neighbors’ properties.
7. Tap Additional Sources of Income
There are a number of strategies to develop secondary sources of income from your rental property. Premium paid parking is an excellent example, as one of your tenants will certainly want to reserve the lone carport in your fourplex for their most treasured automobile. Invariably, shared resources in small multifamily properties are underused or abused if they are not valued fairly.
8. Raise Rent
If your rental rates are significantly below the rest of the market, you may be able to simply increase the rent at the next available opportunity. Even a 3% annual inflationary increase will add up over the years.
In the upcoming and final article of A Beginner’s Guide to Multifamily Investing, we will explore how you can multiply your rental property income over time by recycling equity and leverage.
Credit to Ben Bowman
Ben Bowman is an Architect, real estate agent, investor, and author at AssetsandArchitects
Understanding the basics of a home’s component parts has always been in the real estate agent’s wheelhouse. As internet-connected technologies become part of the package, don’t fall behind the curve.
For the last century, homebuilders and manufacturers have been envisioning ways to make homes smarter, more efficient, and more maintenance-free. But as the Internet of Things (IoT) meets up with smartphone-wielding buyers, the buzz about smart homes is becoming deafening. How do you keep up without getting bogged down in hype? Keep your focus on three things—the definition, the devices, and the data—and on how each of those is changing the home and the transaction.
THE DEFINITION: What is a smart home?
The term “smart house” was coined in the 1980s by the National Association of Home Builders to refer to a home with integrated telephones, lighting, audio, and security. Such systems required special wiring and typically cost tens of thousands of dollars. But the concept has evolved with the proliferation of inexpensive devices that can be operated via smartphone and can make data accessible online. Now, one real estate franchise is trying to bring about some common understanding of what it means to call a house a smart home.
In May, Coldwell Banker Real Estate LLC joined forces with consumer technology news source CNet to define a smart home as “equipped with network-connected products . . . connected via Wi-Fi, Bluetooth, or similar protocols for controlling, automating and optimizing functions” of the home. Their definition stipulates that the home has internet access, a smart security or temperature system, and at least two other smart features, such as appliances, entertainment devices, heating or cooling equipment, lighting, landscaping elements, air quality monitors, or thermostats.
Danny Hertzberg works on the front lines of smart-home living: the luxury market, where such features have moved “from an impressive amenity to an expected element,” he says. Hertzberg, a sales associate with Coldwell Banker Residential Brokerage in Miami Beach, Fla., and a member of real estate team The Jills, says his franchise’s effort to define a “smart home” is an important step toward eliminating casual or misleading uses of the term.
“It’s false advertising to have a Nest [thermostat] and call it a smart home. You can’t call the whole property a smart home or a smart condo and just have one element,” he says. “We need a nationwide consensus on the marketing terms. Otherwise people will be disappointed.” Or worse, they’ll feel duped.
THE DEVICES: What’s happening in smart-home technology?
In the high-end Miami market where Hertzberg works, he’s noticed home owners who are thinking about listing their homes are proactively installing smart-home systems, believing they’ll be at a disadvantage without them.
And with builders now installing smart devices in new construction, it’s only a matter of time before the trend reaches older homes and lower-priced listings, with sellers positioning these devices as points of differentiation. It helps that many smart-home devices can be had for a nominal cost—a few hundred dollars or less. Among the low-cost offerings are the Belkin WeMo switch, which plugs into an outlet and enables you to control lighting through a smartphone or motion sensor; the Amazon Echo, an interactive speaker that lets you use voice commands to access music, news, and more; and, of course, the Nest thermostat, which offers access from your phone and promises to learn your heating and cooling preferences.
Products like Nest have built-in data sharing tools to help potential buyers see themselves in a home, says Matt Flegal, a spokesperson for Palo Alto, Calif.–based Nest. Buyers who are considering a listing with a Nest thermostat, for example, can see the current owner’s app dashboard or the monthly usage email Nest sends to home owners. Although utility companies now offer online access to energy usage information, Nest brings control and usage data together in one package. “It’s a simple thing to do to make a house show better,” Flegal says.
When you’re vying for a listing equipped with smart-home features, Hertzberg suggests having a discussion about which features will convey and how those features improve the current owners’ lifestyle. “Understand why they installed a feature and what they love about it,” he says. For example, maybe they always left the lights on, so smart lighting has been a money-saving solution. Or maybe they entertain frequently, and smart speakers have enhanced the experience.
“As good as you think you are at copywriting, the owners sometimes have these diamonds,” Hertzberg says.
Understanding how smart technology works can make a difference. Hertzberg has seen the unfortunate result of showings where colleagues failed to learn how a system works. “The listing agent comes into the home and doesn’t know how to operate the system,” he says, adding that it’s a real turnoff for buyers. “Even to turn the lights on, they have to call somebody.”
The best way to get to know smart-home technology? Install it at home, Hertzberg suggests.
THE DATA:What’s the value of all that data collection?
One attraction of Wi-Fi–connected thermostats is that they enable home owners to track and optimize their energy usage. That data, combined with other available information, can be a boon for real estate agents.
For first-time buyers, in particular, the cost of ownership isn’t always readily apparent. “Energy costs are often the largest cost for the consumer after the mortgage,” says Hunter Albright, senior vice president of new markets for Tendril, a company with offices in Colorado and Western Europe that aggregates smart home technology data for consumers and real estate professionals. Tendril gathers around 300 data points about a property, most from publicly available sources and provides a system for helping consumers optimize their homes to be more energy–efficient. “It’s just more education for the home buyer,” says Albright. “It’s giving people a richer picture of that home.”
“Before a client is a home owner, you can use the [Tendril] tool to get an average of the energy costs,” says Ryan Carter, managing broker of 8z Real Estate in Denver. With tweaks based on possible upgrades and the potential owner’s energy needs, “the system can offer an idea of what a buyer might be looking at.”
Tendril sends 8z’s past clients a bimonthly email about energy efficiency and upgrade ideas. The email offers practical information, such as what makes a home suitable for solar panels or how an energy upgrade may pay off over time. The emails aren’t meant to replace brokers’ contact management systems but to augment them, Albright says. The personalized communications aim to show consumers that they made a smart decision.
Another company working to simplify home owners’ energy decisions is HomeSelfe, a division of Long Beach, Calif.–based Energy DataMetrics. The company’s home energy assessment app walks owners through their home for a snapshot of their home’s energy consumption. “Our free mobile app has you answer a few simple questions about your home and then sends an instant report that provides a picture of your home’s energy use and a personalized path to lowering utility bills,” says cofounder Ameeta Jain. HomeSelfe is one of eight companies currently in the National Association of REALTORS®’ REach accelerator program (narreach.com), which provides mentorship, education, and exposure for companies innovating in the real estate space.
Autopopulating Listings
For now, the data being collected by smart-home devices isn’t being curated for use in listing information. Although many MLSs have fields where listing agents can add information about energy savings, they’re not set up to feed in information from smart-home devices—yet. Chad Curry, managing director of NAR’s Center for REALTOR® Technology, says it’s just a matter of time. The Center recently established CRT Labs to help REALTORS® understand and have a voice in the development of smart-home technology.
Organized real estate’s role isn’t yet certain. But CRT’s participation in the U.S. Department of Energy’s Home Energy Information Exchange Accelerator is one cause for optimism. The accelerator is a three-year collaboration between the public and private sectors, with the goal of making home energy information more accessible. “With what we’re doing and the way we’re seeing MLSs respond, I think we’ll have this in two to three years,” Curry says. “Our vision is that none of this stuff would be entered by the real estate professional. It would be automatically updated by the house, and we think that’s possible.”
The Caveats
Will all this new data open up a host of new disclosure concerns? Yes and no. Say sellers have a moisture-sensitive smart device on their basement floor to measure water levels. It could give them hard data about the precise amounts of dampness and flooding that might have happened over the course of their ownership. But NAR Associate General Counsel Ralph Holmen points out that the greater availability of data won’t alter the basic calculation about disclosures. “These devices don’t really change the approach,” he says. The responsibility of the listing agent is the same; if you know it, disclose it.
But Holmen notes that brokers and agents must understand the data being collected. “The broker has an obligation to find out more about what the data shows and what that means for buyers,” he says. “He can’t turn a blind eye to things that might be a problem, even if the owner doesn’t say there’s been flooding.”
Privacy is another major concern. There have already been headlines about smart-home devices exposing private information about unwitting home owners. Some may worry that simple data, such as when electricity is being used, could help thieves determine when a home might be empty and vulnerable. Curry acknowledges these issues and notes that NAR is working with Underwriters Laboratories’ Cyber Security Assurance Program to address software weaknesses and review security controls.
Home owners who are reluctant to share energy and environmental data and other information about their home may soften over time as they see the convenience provided by these devices. “Rather than thinking of it as something you’ll have to disclose,” Curry says, “think of it as a way to improve owners’ quality of life.”
Credit to Meg White
Meg White is the managing editor of REALTOR® Magazine.
