Apartment Market Digital - Apartment Outlook 2014

Page 1

Apartment Outlook

2014 Identity Theft: Keeping Renter Data Safe

ALSO IN THIS ISSUE: • Data Data Sources for Average • Apartment Rents

• Investment Return on • TheThe Apartments

Apartment Market Outlook: 2014

Apartment Market Hot Spots: Cities to Keep an Eye On 1

Apartment Market Digital • Spring 2014

• Sources That Renters Use to • Sources Find Apartments • Apartment Resident • TopTop Complaints • to Manage Hoarding • HowHow Tenants • Recognizing False Apartment • Recognizing Reviews • New Construction Facts • New www.apartmentsforsale.com

Data Sources for Average Apartment Rents


source of contention between property managers and real estate investors is how to set the price for a rental property. Outside of your business model and profit margin expectations you have to also consider what the current market will sustain and what similar properties are renting for in the local economy. There are resources available to help you determine what a reasonable asking price should be for apartment rent and what you can expect to receive for your properties. • Typical residential rent prices are provided by the U.S. Bureau of Labor Statistics in the Consumer Price Index which provides data for government statistical information and is an important resource of economic trends to use when setting your rental rates.


• Census data concerning rental prices is available through the American Community Survey. The Census Bureau further provides Statistics of Market Absorption as a quarterly and annual report showing asking prices for newly constructed apartment communities. • HUD is another government agency that provides its information to the public concerning rental rates. HUD provides information concerning rental rates in both metropolitan areas and rural rental properties in the estimates of Fair Market Rents.

Apartment Market Digital • Spring 2014

• The National Multifamily Housing Council (NMHC) provides information on their website that includes regional statistics on the going rate for apartment leases. • NMHC offers public distribution of reports concerning median rents, monthly distribution of rent payments and apartment rent as a percentage of household income. The use of these resources provides you with factual and immediate, current information about rent prices nationally and how that compares to your local situation. Use these facts to judge where and when you want to invest in buying or building rental space along with how to best determine the lease value of those spaces. p



The Investment Return on Apartments

hy is investing in apartments seen as a great option? Does it really guarantee investment return as many people see it? These are questions that many people have never gotten the right answers to. Apartments are a great investment platform, not just in the United States but also across the world. These investments are bound to bring in a myriad of investment returns in the near future. The aspect of investment return Whenever you want to invest, you need to appreciate that these returns can exceed or even fall short of those that were registered


in the past. However, demographic trends suggest that the demand for apartments will continue to grow moderately in the year 2014 and the coming years. Short average development periods Another aspect that makes investing in apartments a good option is that they have generally lower development periods. This aspect makes it easier for support to relatively adjust to changes in demand. This then results in a reduction in amplitudes of building cycles. Finally, rental controls and various forms of regulation in regard to rental property are less extensive today in the United States than in most

countries all over the world. The past and what we can expect in future In the year 2006, the United States had a total of 17.6 million apartment residences. The value of all these apartments was estimated at a total of $1.87 trillion at the end of that year, which was generally an all time high. The total value of all these apartments has been rising at an exponential rate since that time through a period that included the state of economic recession. Direct investments in apartments have provided a competitive investment return relative to other major property types in the United States.

Apartment Market Digital • Spring 2014




Sources That Renters Use to Find Apartments

n the modern age of internet communications, few renters use the local newspapers to find apartments anymore. However, some traditional methods of finding a home are still in use. Although the method may vary a bit regionally, renters tend to consistently use three main sources to find an apartment across the country. • The most common method remains the traditional drive by and see an apartment sign. This allows the potential renter to see the property firsthand and make a decision based on curb appeal. This allows the renter to find a home in an area they are familiar with,


whether it is close to work or close to the areas they tend to visit around town. • Word of mouth is also a common method of finding an apartment. A renter’s friends know what the renter likes and can keep an eye out for potential openings. This is especially true when someone is moving to a town in which they don’t currently live but have acquaintances in the area. • Internet sources are also used often when moving to a new city or when looking for a better apartment in town. Craigslist serves the purpose that

Apartment Market Digital • Spring 2014

newspapers used to serve as a starting point for the search. Paid or free websites specific to property listings are also available and used when the renter needs to find a home quickly without time for an extended search. As the landlord, it is important that you keep all of these sources in mind when advertising an empty apartment. Your apartment will rent faster if you utilize all the resources available to let potential renters know about your offering and it usually gives you the option of several applicants to choose from to move in. p


Top Apartment Resident Complaints


ome apartment residents have legitimate complaints about what they dislike in their apartment. These complaints need to be addressed because any business is more successful with satisfied customers, especially in the real estate business. Empty apartments not only don’t produce income but require holding costs and continued maintenance expenses while empty. Infestations are a top concern for tenants. Nobody wants bugs in their home, and apartment residents can’t be held responsible for the effects of their neighbor’s problems as bugs cross between apartments. Fumigation is simply a business expense for apartments and has to


be included when determining the monthly payment amount. Other maintenance problems are also high on the list of tenant complaints. Whether it’s a leaky roof or a leaky faucet, apartment residents hold an expectation that repairs will be conducted properly in a timely manner. It is, appropriately, their expectation that the rent payment is for an apartment with all the advertised amenities to not only be there but to also function properly. Legal issues are rarely taken to court by a tenant, but compose a variety of complaints about how the lease is handled. Deposits that aren’t returned, lease terminations that aren’t handled properly and evictions fall in this category. To

handle these complaints, make sure to address these issues in your business plan so you know you haven’t done anything wrong. Set up a separate account to hold deposits until after the tenant leaves, and make sure to use all the proper legal procedures when conducting an eviction. In some cases, these complaints can’t be avoided, as some tenants make excuses for being late on their rent payment. All you can really do is make sure the complaints are unfounded and minimal as you take care of your apartments responsibly. p

Apartment Market Digital • Spring 2014


How to Manage Hoarding Tenants


s a landlord, discovering one of your tenants is a hoarder can be distressing. The American Psychiatric Association designates hoarding as a mental health disorder. However, when a hoarder becomes one of your renters, they are protected by the Fair Housing Act which states that you cannot discriminate a renter due to a disability. Types Surprisingly there are an endless number of hoarding types. The most common include the Garage Hoarder and the Yard Hoarder. The Garage Hoarder stores every item they have ever owned in the garage. The Yard Hoarder keeps a disturbing number of statues, figures and other structures scattered around the yard.

Warning Signs There are many different signs that reveal whether a tenant is a hoarder. First, sections of the apartment have become completely unusable due to clutter. Second, within that clutter, there is no organization. Third, the cluttered items do not hold any value such as trinkets, figurines, junk mail or old clothes. Fourth, the home is becoming extremely unsanitary. Hoarders typically live in homes that are considerably dirty. Finally, the tenant may become extremely defensive when confronted with their hoarding.


Apartment Market Digital • Spring 2014

How to Solve the Problem Depending on the severity of the hoarding and their behavior, the tenant may be in violation of the lease, which could be grounds for eviction. Observe and determine if the tenant is in breach of the lease due to the following: • Property damage • Blocking emergency exits • Interfering with the ventilation • Housing animals that does not abide by the lease agreement • Holding perishable goods that could attract bugs, mold or rodents. In this situation, it is critical to develop an action plan by documenting the condition of the property, offering help to tenant, providing notice for them to remedy the situation, seeking legal advice and then beginning the eviction process. p


Identity Theft: Keeping Renter Data Safe


dentity theft is a serious concern to both consumers and retailers. According to the Federal Trade Commission (FTC), it’s the fastest growing crime around the globe. Annually, about 10 million individuals fall victim to identity theft, or about 19 people per minute. The landlord-tenant bond is one that involves trust between both parties. It’s important for apartment owners to have access to the financial records of those who live in their buildings, but it’s equally crucial that this information be kept out of the hands of criminals. Here’s what every landlord or commercial real estate investor needs to know to keep their tenants safe.


• Take care to check the background of all employees. 70 percent of all thefts of identity last year were perpetrated by an employee of a business or by the victim’s coworker. Thoroughly vetting your employees may reduce the risk of identity loss. •

Dispose of all information properly. Thieves have no problem rooting around in trash to get the information they want, so it’s not enough to just toss out sensitive documents. Instead, use a shredder on all tenant information.

• Protect your computers. Stop hackers in their tracks by using password protection on

files and ensuring that your virus protection and firewall are kept up to date. Avoid storing sensitive information on laptop computers, which can be easily accessed. • Protect your mail. Don’t allow mail to pile up outside of your office. If it’s not delivered inside the building, invest in a locked mailbox that will keep thieves at bay. You may want to consider purchasing locked boxes for your tenants to use as well. Identity thieves thrive when information holders get careless or lazy. Setting up good habits now means less chance of aggravation in the future. p

Apartment Market Digital • Spring 2014


Recognizing False Apartment Reviews


onesty sometimes feels like a rare commodity between apartment owners and tenants. As technology provides us all with greater insight into the thoughts and actions of ourselves and others, it may seem as if dishonesty is the only way to make us stand out from the rest of the crowd. However tempting it may be to post fake reviews of apartments or to “pad” the amenities offered in our facilities, we have to keep in mind that these behaviors aren’t just unethical, they’re downright illegal. Fake apartment reviews are worthless in the long run and if you have a problem with your property that’s serious enough to require falsehoods, it’s better to spend your time fixing what’s broken instead of simply covering it up.


In a perfect world, being upfront and honest with our tenants would be all the encouragement needed to ensure an ethical partnership between all parties. Unfortunately, despite our best efforts, some individuals will use social media or online reviews to harm our reputations. Here’s what to do if you find yourself the target of negative apartment reviews: 1. Make reviews a priority. Check apartment review sites first thing every morning to prevent any nasty surprises. 2. Respond to all reviews, if possible. Thank the poster for leaving feedback and keep your tone professional when asking how to resolve disputes.

Apartment Market Digital • Spring 2014

3. Don’t incentivise reviews. Overly glowing reviews, combined with negative ones, send out a warning signal to potential tenants. 4. If you receive a review that you feel is unfair talk to the webmaster of the review site. You may be able to get it removed. Thanks to the rapid expansion of social media and review sites, we’re able to communicate more effectively with our customers than ever before. Make sure you’re sending your potential tenants the right message. p


Apartment Market Outlook: 2014


enting seems to have become the norm for a generation of would be-buyers priced out of the housing market. About 66.5% of American households owned the homes they lived in at the end of 2010 according to the U.S. Census Bureau. That figure stood at 67.2% at the end of 2009. Last year (2013), the number of home owners dropped by 30,000 compared to 2012; during this time, a total of 1.1 million renter households were added.


Interestingly, though, the decline in buying is not being driven by foreclosures pushing potential buyers out of the real estate market. It seems more people, especially the younger generation, are being made to believe that owing a home is no longer a lucrative investment. The rates amongst people aged 55 and above remain rather consistent. So, why are people renting rather than buying? Most cite fear for continued fall in home prices as the

main reason for not buying. Some are uncertain about the stability of their jobs while others decried tighter credit standards for mortgages as an impediment. For real estate investors, now is the time to take advantage of this trend towards renting. With the continual increase in demand, the apartment market has a positive outlook for the year 2014. p

Apartment Market Digital • Spring 2014


New Construction Facts


here is no doubt that the financial crisis of 2012 burdened the younger generation to a larger extent. Today, this same generation is poised to drive the demand for housing in most parts of the United States. After many years of downturn, the US home building industry is solidly contributing to the economic growth of the country at large. One important factor to take note of in this growth is the expansion of multifamily construction such as condominiums and apartment buildings. Home ownership remains down for the younger generation Although there has been a growth in the property sector in most parts of the United States, home own-

ership is still down in 2014 for the young generation. The overall number of homeowners is at an all time low compared to where it ought to be relative to the degree of population growth. What has this resulted in? Due to these trends, there has been an upsurge in rental units’ demand, which in turn has led to a reduction in vacancy rates and has driven the demand for multifamily development upwards. With few units available for an ever-growing number of renters, 2013 truly marked a significant rise in multifamily construction.

10 Apartment Market Digital • Spring 2014

The future of multifamily construction in the United States Experts argue that multifamily development in the United States is expected to spur economic growth in 2014 and in the years to come. This element has allowed housing to significantly contribute to the growth of the economy for the first time ever in seven years. Some states and cities such as New York, San Francisco, Boston, San Jose, Northern New Jersey, Washington DC, Orange County, Los Angeles, San Diego and East Bay are widely touted as top markets in terms of asking rents for multifamily construction. p


Apartment Market Hot Spots: Cities to Keep an Eye On


s the real estate market begins to recover, more people are becoming interested in investing again. The apartment market has always held high expectations for return on investment. A multi-family property provides the resources to cover itself when one unit is empty, as opposed to rental houses which incur holding costs and can be devastating if left empty for too long. There are the old standby cities for investment such as Los Angeles or New York, where the nearly guaranteed return inspires a fierce competition for investment opportunities. Other nationally known cities are growing and drawing in new residents. These are the hot spots for investment, as jobs draw in more people needing a place to live.


• Forbes Magazine has recently listed several Texas cities as the most rapidly growing economic areas in the country. Austin, Dallas, Houston and San Jose are each bringing in college graduates and experienced professionals as new businesses open or expand into the area. • As more tourists are finding Denver to be a pleasant vacation, more locals are moving in to run the tourist industry, making this a fast growing city with plenty of opportunity for the real estate investor.

main offices accessible to both the North and South Eastern states. As with any investment, there are a few things to consider before you decide on a property to invest in. The specific area is important, concerning neighborhood crime rates and school districts that draws renters to the particular apartment market. On a larger scale, you want to invest in cities that are growing and have job opportunities, thereby attracting professionals and labor that needs to find a local residency. p

• Raleigh and Charlotte are drawing people as their universities grow and banking industry finds North Carolina as an intermediate place for

Apartment Market Digital • Spring 2014 11

New Rules for Raising Capital for Real Estate Investments

By Darrel Dickson ApartmentsForSale.com


rowd funding rules for real estate changed recently and with the available technology the landscape for raising funds for real estate investments in the future will be changed. The Jobs act created an entirely new exemption from registration of the securities act which will permit companies to publicly offer and sell up to a million dollars in securities over 12 months without needing to

register. There are restrictions and individual investors annual income or net worth less than one hundred thousand dollars may invest no more than the greater of $2000 or 5% of his or her annual income or net worth. If his or her income or net worth is higher than $100,000 he or she may invest no more than 10% of annual income or net worth and never more than hundred thousand dollars. A new type of broker known as a funnel portal must be used to fa-

cilitate the sale. The funnel portal will be required to register with the SEC and other organizations and to confirm the investors satisfy the investment requirements. Companies that use the crowd funding process will have to file with the SEC. Certain information of the operating companies involved in raising funds will need to be provided to the SEC: such as the business plan description, company’s capital structure, and intended use of the proceeds, audited financial statements will be required for ... continued on page 13

Free listing service for brokers and owners for 50+ units in the United States 12 Apartment Market Digital • Spring 2014


New Rules... from page 12 offerings of more than $500,000. The Offering Company will need to file ongoing reports with the SEC based on rules yet to be determined by the SEC Crowd funding is an interesting new opportunity for syndicators to raise capital for real estate investments. Real estate operators will be able to raise capital online from groups of investors in an automated way Real estate investments typically have been illiquid. Investors have plenty of opportunities to invest in stocks and bonds but when it comes to actually access private real estate deals the process in the past has been difficult for private investors to participate. Crowd funding will change all of that. Crowd funding eliminates the barriers that are typically associat-

ed with real estate investing such as having the time and expertise, and knowledge to invest can make investing in real estate a challenge. But pulling your money together through crowd funding you can access investment opportunities that otherwise would not be available to a busy professional to manage a property by themselves. You can have others with the knowledge and experience and the time to manage your real estate investments. In the near future, I foresee that you have an opportunity to browse different investments from your computer looking at opportunities in different metropolitan markets throughout the country. Real estate is becoming more efficient with sites like Zillow and others providing incredible amounts of data to real estate investors. You are going to see more efficiency in the private real estate investment

market. Because of the change in security laws more investors are going to have crowd funding opportunities and it is going to open up opportunities for not only accredited investors but also with the jobs act crowd funding rules will see retail investors participating in the future. Before September 23, 2013 it was illegal for real estate investment operators to publicly advertise that the private company was seeking funding. The new rule change allowed operators throughout their fundraising efforts to market to persons on Facebook or twitter or other social media outlets. Different real estate investment websites will be developed to raise money on line in the near future. It will be fun to watch which companies become the leaders in this new frontier of raising capital for real estate investments. p

PCMI is a Licensed Real Estate Broker in Washington and California.

(360)802-0983 www.apartmentsforsale.com

pcmigroup.com Apartment Market Digital • Spring 2014 13