Rent Sense in Apartment Magazine

“Rent Sense” is a syndicated column respected and enjoyed throughout California by independent rental owners, serious real estate investors, industry professionals and savvy renters of choice. In this month’s issue of Apartment Management Magazine Neil Fjellestad and Chris DeMarco discuss why rental ownership is absolutely the investment of choice for individuals that have the stamina […]

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Rent Sense: SDCAA Tribute

Rent Sense: SDCAA Tribute
By Neil Fjellestad and Chris De Marco
FBS Property Management

Rental Ownership is essential to the financial strategies of independent and institutional investors providing reliable income streams to supplement retirement and build wealth to offset the threat of capital contraction due to inflation, length of life or unexpected costs. Rental ownership must be preserved as a viable investment alternative for a growing portion of the population considering retirement.

Rental Ownership is an essential contributor to the local business community providing opportunity for professional real estate practitioners, building contractors and business suppliers. There are “best business practices” and usable technologies that create a growing expectation for quantity and quality. Performance standardization also creates additional consumer liability.

Rental Ownership has traditionally provided nearly half of the region’s housing. There are economic factors and lifestyle considerations that preserve the continuity of demand for rental housing. Therefore, responsible rental ownership is an ongoing essential part of our region’s social, cultural and political fabric. Our contribution is increasingly understood but with higher expectations.
During the last century the San Diego County Apartment Association has made significant contributions to enhance, preserve and protect Rental Ownership as essential. Going forward there is much to do.

In order for this organization to perform its mission we believe that new initiatives must be carefully considered. These initiatives will acknowledge both the ongoing essential nature of Rental Ownership and a renewed awareness of our uniqueness as to the focus of this organization.

The timeliness of such consideration is based upon a variety of contemporary conditions that challenge rental ownership as a viable investment, a performing business and necessary housing provider. These same conditions challenge this organization to accomplish its mission with focus, organization and passion.

Rent Sense: CRM

Rent Sense: CRM
By Neil Fjellestad and Chris De Marco
FBS Property Management

Is your apartment community a revolving door?

Some multi-housing specialists have estimated that it costs five times as much to re-rent an apartment home as it does to keep an existing resident. Multiply the cost to turn an apartment by the number of apartments in your community and multiply that result by the national average for resident turnover of 60 percent. This will give a ballpark figure of what vacancies could be costing your community annually.

Let’s say for example that the average estimated costs to turn an apartment home are between $2500 and $3000 (lost rent, clean up & replacement, advertising, time spent re-renting). Let’s take an apartment community with 125 homes. Multiply 125 by the lower estimate ($2500) and then multiply the result by 60 percent and the result is a potential $187,500 annually in lost revenue from turnover. It’s a lot cheaper to keep residents happy.

Customer relationship management (CRM) is key when it comes to keeping residents. Residents can be demanding with high, but generally reasonable expectations. They expect their grounds to be neat; their appliances, lighting and plumbing to work; their parking problems resolved; and a sense of being home. When there is a problem, they want a) management to be empathetic and b) everything resolved quickly with the minimum amount of inconvenience to them.

Service and convenience are the major reasons that customers choose rental housing and yet, studies have shown that a major reason residents leave is poor service. Ninety percent of residents say that there is room for improvement in the way that their communities handle their service requests. This is not something that residents will necessarily tell onsite management. Research shows that 95 percent of customers who are dissatisfied never complain to management.

The focus in the multihousing industry is generally on leasing, but it’s important that existing residents know that management still cares about them after the move-in process. Here are some suggestions to improve CRM:

• Create a Smooth Move-in Process – New residents should receive a signed copy of the lease and other documents. Everything in the apartment should be in good working order and “white-glove” clean. Consider giving new residents a “move-in” kit with helpful information, tips, coupons and contact numbers.
• Handle service requests quickly and have it done right the first time. Ask residents if there’s anything else you can do. Chances are that there is something else in the apartment that needs to be done and they forgot to tell you about it.
• Greet residents with a smile and a service attitude whenever you see them. Ask how things are with their homes. Resolve problems quickly and properly. Let residents know you’re happy to have them at the community. Treat everyone fairly and consistently.
• Residents are more likely to stay if they feel that they’re more than just “a name on the rent roll” to management.
• Survey existing residents to find out what’s going well and gather suggestions for improvement. Determine what services they would like to see. Some residents may also be more willing to give feedback if they have the option of remaining anonymous.
• Shop the Competition to know what alternative are offered in the market. It’s a good idea to know how your community measures up to the competition and check on any trends in the local market. For instance, are there any incentives or services that give other similar communities a competitive edge?
• Resident Meetings – Hold meetings at a time and place that’s convenient for most of the residents. Make it fun and offer incentives (such as free food) for attendance. This is a good opportunity to gather feedback and see what residents are thinking.
• Value Added Service – Are there any unique or special services by living at your community. Some communities offer discounted rates on or include cable, high-speed Internet access and/or other services. Another community might let residents use a vacant apartment to set up an onsite daycare center. Be creative.
• A Resident Newsletter is a great way to keep residents posted on community events and issues that might affect them.
• Resident Parties allow you to get to know and mingle with residents. This also fosters a sense of community.
• Renewal Rewards – Offer residents incentives to stay, this could include gift certificates, apartment upgrades (why should new residents get all the “good stuff”), and services.
• Intent to Vacate Interviews – Find out whether the reason a resident is leaving is something that management could easily resolve. The resident may be more willing to stay if management is able to work with them.
• Pay Attention to Frequent Complaints – Resolve these problems quickly. For instance when one manager failed to resolve parking problems, the result was a meeting planned and held by several angry residents that, besides discussing the main problem, aired several other complaints about management. Some residents threatened to leave over the issue.
• Conduct Exit Interviews – Know why your residents are leaving. This is crucial to pinpointing problems. Take a move-out gift to their place of employment. Imagine the impact on their co-workers.
• Train Your Team – A resident retention program cannot be effective if the front-line team is not properly trained to implement it.

The primary goal of property management should be to keep existing residents happy. There will always be some reasons why residents leave that can’t be controlled (buying a home, job transfers, etc.), but practicing CRM can help minimize the number of residents that leave.

Reducing turnover spells relief for your service team and allows your leasing to keep up maximum occupancy. This translates to better attitude onsite along with the time and energy to continue to provide excellent service. It doesn’t take long for consistent excellent service to brand an apartment community as a “great place to call home.”

May Legal Questions Part 3

11. Question:
I am the resident manager of an apartment complex where we only offer one year leases. After
six months, one of our residents gave me a thirty-day notice because he lost his job. I informed
him that a thirty-day notice is not effective during a long term lease, so he wrote me a letter
saying he was leaving because of the loud noise coming from the swimming pool late at night.
He said his attorney said he could legally do this. Is this true?

Answer:

It appears that the real reason for leaving is his inability to continue to pay rent, but even if there
was disruptive behavior in the swimming pool, he could not legally quit the premises unless he
could prove that you were negligent in maintaining peace and quiet in the apartment community.
If you took reasonable steps to maintain the quiet enjoyment of the property, the resident is
required to pay you for the remainder of the lease term.

12. Question:
Are the laws any different between “motels” and “apartments”? Where could I get a booklet or
more information on this matter?

Answer:

The laws are significantly different between motels and rental housing. For instance if a motel
customer fails to pay, the police can be immediately called to remove the customer. In a
residential rental dwelling such as an apartment, however, the owner must go through the
tenant eviction process to regain possession. You may be able to obtain information from the
California Lodging Association and the California Apartment Association.

13. Question:
Can I legally “fax” a three-day notice to pay rent or quit to my tenant at his work?

Answer:

California law specifically identifies the legal methods of service of process for a legal notice.
The methods are personal service, post and mail and substituted service. Faxing a copy is not
a valid service and is not recommended. If the tenant actually receives the notice, however,
there is case law to support the claim that if there is actual service, the method of service is
irrelevant.

14. Question:
I am an owner of several small apartment buildings. What legal responsibility and liability does
an owner have for changing locks when changing tenants?

Answer:

An owner or manager of rental property is held to the same standard of care that would be
required by a reasonable and prudent owner or manager in like circumstances. In other words,
if one of your residents claims they were robbed or injured by someone who had a key to their
apartment, they could claim you were responsible. They could prevail in court if the trier of fact
believed that a reasonably prudent owner/manager would have changed the locks when the
former resident vacated the rental unit.

15. Question:
I have been asked by another property manager if a former tenant of mine caused any problems
and if I would rent to him again. I suspected that he was a drug dealer or at least a drug user
but I cannot prove it. What can I tell her?

Answer:

If you are unsure, you should remain silent. From a legal point of view, it is always safest to say
nothing. However, if you choose to do so, you should only reveal information, if any, that you
know to be true and can be documented. When making a recommendation, you are always
running the risk that the person you are referring to believes you are defaming their good name.
Making timely notes of what you said and who you spoke to, will be valuable if you are
questioned about the conversation in the future. Discuss only facts that pertain to compliance
with your lease or rental agreement.

16. Question:
I suspect there are at least five people living in a one-bedroom apartment in one of our units.
The lease only allows three persons and they have not paid rent. I want to serve a three-day
notice to pay rent or quit, but I do not know all of their names. What should I do?

Answer:

If you serve a three-day notice, address it to the occupants for which you have the names and
also to “all others in possession.” If they pay the rent, however, you may have agreed to the
additional people living there. If you do not intend to allow their occupancy, you could also
serve a three-day notice to perform conditions and/or covenants or quit requiring that the
additional people vacate within three days. If either or both of the notices are not complied with,
you can commence with an eviction in court.

17. Question:
A tenant of three years recently vacated with only a verbal two-week notice. Can she be
charged for unpaid rent? She did not have a lease agreement and never signed anything
stating that she would give a thirty-day notice.

Answer:

If the rent is paid monthly and there is no term stated in the lease, written or verbal, the law
presumes you are under a month-to-month agreement which requires a thirty-day notice to
terminate. If no notice was given, the former tenant owes rent up to thirty days or until the time
you relet the premises (you have to try), whichever occurs first.

Ted Kimball is a partner with Kimball, Tirey & St. John LLP. The law firm specializes in landlord/tenant,
collections, fair housing and business and real estate, with offices throughout California. Property
owner’s and manager’s with questions regarding the contents of this article, please call 800.338.6039.

© 2012 Kimball, Tirey and St. John LLP

Rent Sense: Mistakes can void rental ownership benefits

Rent Sense: Mistakes can void rental ownership benefits
By Neil Fjellestad and Chris De Marco
FBS Property Management
There are fundamental investment mistakes made by rental owners that can unravel the potential return and negate the inherent safety of the investment. These mistakes are compounded by poor property management. This combination generally translates into a bad rental experience for the tenant(s) as well.
•    Most businesses fail due to owners’ lack of sufficient capital and experience. Rental ownership (no matter the size of the property) is a business that gets in trouble at purchase by obtaining maximum financing without sufficient down payment, inefficient attention to terms of the loan(s)m like future debt servicing requirements  (balloon payments, interest payment changes). Leverage is a powerful investment benefit but must be controlled to keep the LTV (loan to value) within safe equity parameter that allow for optimum ROI and tax code advantage while buffering against economic downturns.

•    Property improvements, preventative repairs and ongoing maintenance routines are necessary parts of the financial planning as well.

•    Mistakes on rent rates and lease terms create unnecessary vacancy and/or substantially reduce actual rent collected.
•    Insufficient and/or inadequate marketing during the lease up time (typical problem) increases the likelihood for bad tenant selection which can have negative effect on the property; financially and physically.
•    Inexperience managers hesitate to utilize aggressive rent collection, effective negotiation and/or timely eviction to maintain revenue and preserve the property.
•    Failure to respond with businesslike customer service in order to maximize resident retention can be costly as well.
•    An experienced acquisition adviser/property manager is need in the beginning. While we can have an impact at any point, we prefer to maximize the benefits of rental ownership for all the parties from the start.

Rent Sense: Is Month-to-Month Rental Best?

Rent Sense: Is Month-to-Month Rental Best?

By Neil Fjellestad & Chris De Marco

FBS Property Management

Some renters prefer a month-to-month rental agreement citing the high unemployment situation in San Diego or their personal current concerns about contractual commitment. It has always been our belief that a long term lease attracts and best serves qualified renters. The loss from reoccurring moving costs completely overshadows any benefit of remaining free to do so. We will consistently choose to retain our existing residents as their lease expires because the owner(s) will experience an interruption of rent and out-of-pocket costs connected to the turnover. So residents that have paid their rent on time and kept up the rental home will get preferential treatment at renewal.

Most rental owners are seeking to raise rents across the board in order to repay out-of-pocket expenses endured during the last several years and/or to accomplish repairs and improvements that they have deferred. As a month-to-month tenant you are not protected from multiple rent increases and owners will likely postpone requested maintenance until you move.

Other rental owners are selling their primary homes at a loss and/or consolidating their property holdings to preserve equity and credit worthiness. In some cases, this results in vacating their rental properties in order to have a place to live themselves.  In addition, some local rental property owners are choosing to default on their rentals in order to try and save their primary residence. It is often the decision to vacate the property as it is believed to be much easier to deal with an empty property.

By being on a long-term lease no one can decide to raise your rent because they feel like it. No one can ask you to vacate the property on a whim or with a short term notice. And most importantly, if a property is foreclosed upon, an agent/bank must either abide by the contract, authorizing you to live there through the duration of the lease, or must provide you with compensation if they want you to vacate.