Rent Sense: A Lease Requires Your Attention- Part 2

Rent Sense: A Lease Requires Your Attention By Neil Fjellestad and Chris De Marco FBS Property Management Part 2 Here are some suggestions to give you more confidence during the leasing process – • Ask the individual that shows you the rental property (house, condo, and/or apartment) whether you can rely upon the lease agreement […]

Best Practices- New Laws- Are you compliant?

Best Practices- New Laws

By  Lucinda Lilley

We have asked FBS Vice President, Lucinda Lilley, to present a series of articles “Best Practices for Independent Rental Owners” that will be available in various publications from time to time and become a regular feature at Rent Sense.

Lucinda is a Certified Property Manager (CPM) and a Graduate of the Realtor Institute (GRI). Her 25-year distinguished property management career has been refined with earning these internationally recognized professional designations. Ms. Lilley is an industry leader currently serving as a board member for the local chapters of two of the most influential national trade organizations within the real estate industry; the National Apartment Association and the Institute of Real Estate Management. She is an expert on “best practices” and therefore an indispensable resource to our independent real estate investors. Neil & Chris

On August 19, 2013 Governor Jerry Brown signed Senate Bill 612 (Leno) into law. The legislation expands the protections afforded to domestic violence victims when terminating a residential lease. Under current law, a resident who is a victim of domestic violence, stalking, sexual assault or elder abuse may terminate their lease by providing a police report or a protective order issued by the court.

The new law, which goes into effect January 1, 2014, allows for additional forms of documentation that a resident may present to a property owner or manager to end their lease. Documentation from a “qualified third party” or a “health practitioner” must now be accepted. Additionally, these protections are extended to victims of human trafficking.

A “qualified third party” is defined as a domestic violence counselor, sexual assault counselor, or human trafficking caseworker, while the law defines “health practitioners” as physicians, surgeons, psychiatrists, psychologists, registered nurses, licensed social workers, licensed marriage and family therapists, or licensed professional clinical counselors. Prescriptive language for the Tenant Statement and Qualified Third Party Statement is also included in the law.

Under the new law, a landlord is prohibited from disclosing any information provided by the tenant regarding the early termination of his or her lease based on documented abuse unless: (a) the tenant consents in writing to the disclosure; or (b) the disclosure is required by law or order of the court. However, a landlord may contact a qualified third party to verify the legitimacy of the statements.

The law includes a sunset provision for the definition of “qualified third party” for legislative review. In addition, Judicial Council was given an extended deadline of July 1, 2014 to develop or revise a form for an affirmative defense to an unlawful detainer action.

 

Rent Sense: Another Economic Perspective

Rent Sense: Another Economic Perspective

By Neil Fjellestad and Chris De Marco

FBS Property Management

We have built a healthy San Diego business out of advising independent real estate investors, acquiring and managing rental properties for clients while providing superior housing alternatives for qualified renters. More than four decades with properties in 69 zip codes throughout the region provides us a realistic view of the local economy in real time.

Here are some highlights –

  • Most renters pay their rent on time every month. Especially during uncertain times this becomes a financial priority.
  • Rent is clearly their largest household expense and growing as a percentage of household income. In this region a significant number pay more than half of their income as rent.
  • Renters want the privacy, security and convenience of paying their rent online. Those using this alternative pay sooner and avoid additional late charges.
  • Rental owners faced with vacancies that improve their properties even if forced to borrow funds to do so and/or must perform capital improvements gradually are rewarded with more qualified applicants to lease.
  • Existing residents will more likely renew and/or pay a higher rent to live longer at a property that is well managed and maintained.
  • Most rental owners are concerned about leaving a property vacant and will adjust rent realizing that number of days rented is more important than holding out for the highest rent rate.
  • Real estate investors that are buying are satisfied. Those that are selling or re-financing in the current market environment remain frustrated with the lack of expected results and/or inadequate estimate of time to accomplish.
  • Many of the jobs lost over the last 3-5 years are gone. Though other jobs are being created with different requirements and rewards the transition is longer than hoped.
  • Existing small businesses will create jobs when and if they can control risks (the cost of doing business) while believing that the benefits of growth outweigh the alternatives.  Much of this risk will be driven by new businesses.

Rent Sense: Respect Your Customers

Rent Sense: Respect Your Customers

By Neil Fjellestad and Chris De Marco

FBS Property Management

Independent rental owners contact us daily for advice and seek our management help to optimize rental operations. We ask the hard questions – what specifically are they doing to motivate renters to sign a long-term lease at top rental rates and pay the rent on time; every month? After we walk their properties, examine their routines and audit their records we devise a concrete plan of action to gain and maintain customer respect. Perhaps the following will help you get started on your own.

  • Why not make a few minor adjustments to improve the appeal of the exterior of your property? Replace dead or dying landscape, fill pot holes in the parking area(s), make sure the outside is well lit, provide adequate trash container(s) and pick-up, sweep walk ways, wash windows and keep the property clean. You are saying with your actions that property value is as important to you as the monthly rent collected.
  • Do your rent and repair policies demonstrate respect? “Green living” and a renewed frugality are important to all of us. By using energy efficient lighting along with timers you are demonstrating a respect for the rent your resident(s) pay(s). Your building’s water use can be improved with low-flow shower heads and commodes. Timers on exterior watering that adheres to neighborhood and/or community standards save money. Renters(s) are paying for these property expenses through the rent charged and they know it. Your wise property expenditures are a reflection of your respect for your resident(s) as well as your property value.
  • Are you making it easy for your rental customers to do business with you? Make it easy for your residents to pay rent and submit maintenance requests online from their smart phone. Potential renters should be able to fill out an application the same way.  These modern technologies ensure that monies and information move with speed and security. It also says that you want to compete to keep your renter(s); that you respect their time and their money.
  • Are you on top of what other rental properties are currently charging? Being competitively priced demonstrates customer respect.  Your confidence in this regard will be evident in your resident decisions and communications including strict adherence to rent collection according to the lease. Your renter(s) will respect your requirements.

Rent Sense: What about Month-to-Month?

Rent Sense: What about Month-to-Month?

By Neil Fjellestad & Chris De Marco

FBS Property Management

We have noticed an uptick in the number of our renters opting for a month-to-month rental agreement at renewal citing personal current concerns about contractual commitment. Such agreements are only offered at a rental premium and we generally advise our rental owners that a long term lease attracts and best serves qualified renters. 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 though with the current housing conditions the likelihood is that a nominal rent increase will be included.

Due to projected supply and demand for well-located rental homes, condos and apartments rental rates will continue to increase for the next few years. Actually this condition is healthy in order to encourage existing and potential investors by allowing rental increases across the board that can 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 more likely postpone requested maintenance until you move. There are still some owners that are consolidating their property holdings to preserve equity and credit worthiness. In some cases, this results in vacating their rental properties. Certainly having a renter on a month-to month agreement makes this decision easier.

While an owner’s decisions can affect their credit, it often has a much greater affect on the renter(s) living in that home. Once a property is in foreclosure or it is given back to the bank a real estate company is hired to sell the home/property. It is often the decision to vacate the property as it is believed to be much easier to sell an empty property.

By being a preferred renter 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. If the property is marketed for sale and/or changes ownership your lease will normally be honored by authorizing you to live there through the duration of the lease term, or provide you with some compensation if they want you to vacate.

Rent Sense: Use Rental Ownership to Retire

Rent Sense: Use Rental Ownership to Retire

 By: Neil Fjellestad and Chris De Marco

 FBS Property Management

Rental ownership has a long history of satisfying the primary investment priorities of personal financial independence: safety of capital, inflation hedge and tax-favored income. Traditionally, if the detailed financial statements of the wealthy are available for review it becomes apparent that long-term income producing real estate assets directly or indirectly contribute substantially to their net worth.

Certainly there are exceptions that get the notoriety. There are the entrepreneurs that hit the jackpot with a new invention, the right innovation at the right time and/or the market control of a needed commodity. Then there are the speculators that successfully capture the benefits of leveraged capital, cheap labor or some windfall in the short-term that cannot be repeated with consistency.

However, forget the outliers and the top one-percent and concentrate on the basics of what has worked for the top twenty-percent.  Locally understood and available rental properties purchased carefully one at a time consistently becomes the safest real asset to own. Note that a small share in a national real estate investment trust may seem like a “safe way to get the benefits of real estate ownership” but in fact, this is just another financial asset with the same characteristics and historically similar results as any other stock market investment.

Well-located, rental-producing real estate has usually fared better as a long-term hedge against inflation when compared to financial investments. The closer your investment resembles a small business serving customers with an essential part of daily life the more likely that its operations and value are going to keep up with the cost of living.

Though assets may hold value no reliable income is produced. Equity in your personal residence is its own goal providing a sense of financial well-being, a source of emergency funds and a reduction of household expense as you approach retirement; but no income. However, a well maintained and managed rental (house, condo, duplex, and apartments, commercial) that is held free of debt produces tax-favored income on a consistent basis. Smart long-term rental ownership applied to San Diego real estate will allow you a comfortable retirement here or anywhere of your choice.

Finally, providing ongoing rental housing for households and/or businesses within your community is socially responsible and should be a greater source of personal satisfaction and connection compared to institutional financial investments.