President’s Message BY N IC HOL AS A. DU N L AP DI R EC TOR OF P ROP E RT Y MANAGE M E NT, AVANATH C AP ITAL MANAGE M E NT
2015: No Crystal Ball Necessary “There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.” — J.K. Galbraith A new year and a new economic outlook are upon us. Well, at least one of those items is true. While it is in fact 2015, the economy and its impact on the debt and equity markets will remain very much in line with 2013 and 2014. As the owners and operators of rental housing, this will have a favorable impact on our portfolios, regardless of the size or location. For those contemplating change, consider this your third chance to get it right. And while your decision to act or not to act will be dependent on your own goals, desire and timing, please allow me to repeat myself from years past: there has never been a better time than now. Maybe you have an idea of what you would like to do to see improvement in the financial returns generated by your real estate holdings, but you are not sure where to start. Follow these three simple steps to help make 2015 the year you kick your portfolio’s performance into overdrive. Raise Rents By now, you understand the relationship between a property’s gross income and the property’s market value based on a GRM. You are also likely familiar with the relationship between the net income and the property’s capitalization rate. Do your part in 4 1-15 Apt News.indd 4
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maintaining your property’s value by staying abreast of rental activity in your property’s neighborhood and sub-market and set your rent rates realistically and competitively so that you will maximize your income and minimize your vacancy loss. By doing so, you will help to increase the gross revenue and also the net income that are used to help assign a market value to your properties. And if there is a significant gap between your current rents and the market, now is the time to facilitate the increase. Recent data published by MPF Research indicates that Orange County’s market occupancy rate is strong at 97%, revealing a mere 3% vacancy rate for the market. With rent growth for the fourth quarter of 2014 at 2.5%, OC achieved a nine year high. Today, renters are faced with limited inventory and rising prices. As an owner and as an investor, this is highly to your benefit. Re-invest In Your Portfolio With the new year, consider it a best practice to bid out or obtain updated cost estimates on the more significant repairs necessary across your portfolio. In doing so, you will be able to budget, plan and schedule the work accordingly so as to minimally impact your residents, your staff and your bottom line. Specifically, items like re-roofing, wood repair, asphalt and paving are better suited for historically dry months whereas a copper re-pipe
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or other interior focused work can be completed at any time. If the season is not a concern to you, you may be able to obtain a more competitive cost from your vendors as they will most likely have downtime and an employee base to keep busy. Do not underestimate the importance of capital improvements as they pertain to your property’s value. Some of these perceivably small-ticket items can have a big-ticket impact not just on your curb appeal and the resident experience, but your property’s value as well. Although your rental rates are sub-market and property specific, let’s look take a look at some of the capital improvements to consider instituting on the inside of your apartment homes that can help to ensure your rental income and occupancy are optimized regardless of your property’s location. Most of the apartment complexes in Orange County were built between the early 1960’s and early 1980’s, so things like: popcorn ceiling removal, accent walls and two-tone paint, hard surface flooring with a faux wood appearance, updated façade treatments on true wood cabinetry, conversion of bathtub only units into shower/tub units, energy efficient appliances, dual-paned glass windows and countertop treatments on the high-end of granite slab or tile and on the low-end of dressing up a Formica countertop with a new glaze are just some of the ways you can President — continued on page 6 J A N U A R Y
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