Rent Sense: Rental Business is Changing
By Neil Fjellestad & Chris De Marco
FBS Property Management
The new post-recession realities in major employment and dense population areas such as Southern California means that we are likely to experience a shift during the balance of this decade resulting in dramatically increased rental household formation. Broad shifts create entrepreneurial opportunity. Let’s take a look.
Renters will become appreciated as the customers that turn real estate holdings into a profitable rental business. Updating business management practices for operating rental property will be welcomed as an ideal opportunity to bring technological integration, investment in human capital, modern marketing and customer relations to an industry badly in need of a paradigm shift
This is an essential industry with a long tradition of being dominated by passé notions including: an attitude of “build it and they will come” devoid of input from intended rental customers, cost-driven development only providing innovations competitive with status quo among other housing providers, and a limited business vision of rental ownership as providing a necessary product instead of a competitive bundle of product and service.
We also envision this post-recession era as a renaissance of the independent rental owner as an essential housing provider and a savvy business owner in the local community. The independent rental owner is an intelligent investor that is building wealth and providing for retirement in a practical way that has rarely been available through other financial alternatives. The tired notion of a “landlord” that takes advantage of captive “tenants” belongs to the twentieth century. It will be replaced with a badge of distinction for the modern rental owner.
Rent Sense: Rental Ownership Bedrock of Retirement
By Neil Fjellestad and Chris De Marco
FBS Property Management
Think the recession is over? Nearly three-quarters of recent respondents in southern California think not. Think that local real estate prices are going to take off again? Again, the majority believe maybe but not for years. Despite the current set-backs, San Diego is a great place to live but an expensive place to build. Nearly fifty percent of the area’s residents rent and will continue to do so even as the local economy picks up. So, regardless of whether real estate prices are at the bottom and will stay there; whether there are more reductions before prices come back; whether that comeback is fast and dynamic or slow and variable dictated by neighborhood, price range and lending policies here is a fact that you can take to the bank. San Diego’s mild climate and a healthy lifestyle will make your retirement (however you define it) as enjoyable as anywhere in the world. Rental ownership will finance your retirement prosperity.
Don’t misunderstand. Investors have made mistakes owning rental homes and apartments even in San Diego. Here are the primary mistakes we and others have made:
• Owning too much of a good thing: too many properties; too little equity.
• Many real estate decisions: terms of purchase, management choices and maintenance criteria are based on short-term profits instead of a long-term holding strategy.
• Churning real estate. Buying-selling-trading up looking for a bigger or better property.
• Selling prematurely because of a problem tenant, deferred maintenance or bad loan.
Here are key factors for successfully turning your rental ownership into the bedrock of your retirement:
• Own well-located homes, condos and apartments maintaining at least a 30% equity position. Pay down loans to achieve this safe equity position as quickly as possible.
• Repair and refurbish the property to maintain physical quality.
• Carefully qualify applications from potential renters and retain quality residents by responding to legitimate service requests via a professional manager that keeps you buffered from the daily drama, personal liability and/or premature sale.
• Keep good records to document expenditures and optimize your tax write-off.
• Protect yourself with adequate insurance and control your liability with professional property management that inspects your property and respects your renters as customers.
• Generally, rental property should be acquired, maintained, improved and held; never sold. Instead, periodically evaluate whether you should refinance existing property and purchase additional property but the end goal is rental ownership free of debt.
• Don’t lose valuable equity to selling expenses. Rather, retire with the rental income and a reserve for contingencies.