First Rate Property Management Blog

Is Your Money Safe?

Tony Drost - Thursday, July 5, 2018

Over the past few decades, there have been several property managers go out of business and the rumor is, when they did, they took and/or spent tenant deposits and rents.  As of recent, a number of Ada and Canyon County investors have filed claims against another local property manager.  First Rate Property Management has taken on a number of properties over the past few years from this company and we reached out to them asking what the telltale signs were that made them change management companies.  Some say "the writing was on the wall", while others say they knew the company was struggling, but had hoped that the management company would pull through.  When things like this happen, a great deal of people are hurt financially  In no typical order, we have provided the list we put together based on these clients responses.

Links to recent news publications:

https://www.idahopress.com/meridian/news/property-manager-skips-lawsuit-leaving-tenants-businesses-in-the-lurch/article_6200f6f7-bbb8-513f-89fb-73ad66574124.html

https://www.idahostatesman.com/news/local/article214098034.html

https://www.idahostatesman.com/news/local/crime/article213922379.html

1.  Communications:  Poor communications or lack of response can imply poor organization or time management, but constant communication troubles are a flag.  Inconsistent or untrue communications are an immediate flag.

2.  Employee turnover.  Constant employee turnover should be a concern.  Additionally, when employees tell clients that employee paychecks are bouncing and/or payroll taxes are not being paid, is a serious flag.

3.  Financial:

                a.   Irregular  posting of owner statements.  No statement at all is unacceptable.

                b.  Irregular or delayed owner distributions.  No distribution would be of immediate concern.

                c.  Regular inaccuracies on owner statements.

                d.  Undisclosed fees/kickbacks.

                e.  Undisclosed mark up or upcharges of invoices paid by the property manager on behalf of the property owner/investor.

                f.  Unpaid or long delays in paying vendors.  Additionally, when maintenance providers (vendors of the property manager) contact property owners stating that they have not been paid, yet the expense appear on the owner's statement, something is awry.  Worse is when these contractors file liens.

                g.  Contact from tenants stating they have not received their security deposit back or lack of communication from the Property Manager.

                h.  Real estate sales persons sees delays in transfers of funds after a property under the management company's care is sold.

4.  Company growth.  Accompanied by any of the other flags listed above, Rapid growth  or a shrinking business could be a sign.  You would think that seeing that a company is losing properties/clients quickly would be an easy one, but honestly rapid growth can be just as equally concerning.  In the companies we have seen fail, they did so because they were growing too fast and were out of control.

Below are some thoughts we had on how to better protect yourself, the property, and your tenants.

                1.  Don't hire solely based on the lowest fee.  We like to compare it to hiring a painter.  Painter A's bid is half the cost of Painter B's.  And would you believe it, Painter A may actually make more money.  How?  They use lower quality paint, do little to no prep, and don't carry the appropriate worker's compensation and liability insurance.  End result, Painter A makes more money, provides an inferior product, and puts the property manager and the property owner at greater risk.

                2.  Hire a company with experience and longevity within the industry.

                3.  Hire a company who prescribes to Professional Standards and has both personal and company professional designations.  Just being a member of a professional association doesn't cut it.  Many companies simply join these professional associations  to be able to use their logo for marketing purposes.  Choose a company that is involved with these professional associations.

                4.  Read the company reviews and company responses.

                5.  Ask for references and call existing property owners/investors.

                6.  Ask for proof of insurance or if applicable, fidelity bonding

                7. Look at how funds held are held and reconciled.  Ask to see a copy of their 3-way reconciliation (Transparency is key)

                8.  Does the company have 3rd party audits of funds held in trust?


Tony Drost, Chairman
First Rate Property Management, Inc.
Boise, Idaho
Contact me for more information about the Investment Real Estate and Property Rental markets in Boise and Idaho.

Where Is It Going? The Rental Housing Market

Tony Drost - Tuesday, July 3, 2018

Below is an article in the July issue of the Residential Resource, written by Colleen Harding from Miami.  Within the article, Colleen describes factors that are making up today's housing rental market.  Much of what Colleen has to say is what we have reported in the past.  There were a few points that I found very interesting.

                1.            Millennials find value in investing into rentals, but prefer to rent.

                2.            Class C properties will be the bread and butter for investors.

                3.            Over 15% of the nation's rental properties are owned by institutions.

                4.            The number of rentals across the nation are expected to grow by another 25% in the next 5 years

Below is a summary with some of our own input.

 MILLENIALS:

                Colleen reports that millennials are staying home longer, have high student loan debt, and some reservations about home buying after seeing the last housing crash.  They like flexibility, by not being tied down.

                We have seen much of what Colleen has stated.  We are however seeing a good number of millennial renters, but they seem to prefer roommates to help defer costs.  Colleen also stated that milennials look for luxurious amenities.  Perhaps that’s case in many parts of the nation, but in Boise, we're seeing that they are looking for the most for the least amount of rent.

 OWNERSHIP VS RENTALS:

                Colleen states that "Lower-income Class C properties will continue to be the bread and butter areas for rental investment, accentuating the need for good professional property management".

               We've been concentrating on  B properties.  We think that when rents finally top out and we see a rental correction, the B properties purchased right, will outperform the A properties that are being sold at premium prices and require premium rents to perform.

 HOME OWNERSHIP TENURE:

                The length of time a person owns and hold their home has increased.  One reason was it took some time to recover value after the housing crash.  With values increasing, this may decrease.

The full article is posted below.


Where Is It Going?
RENTAL HOUSING MARKET

     At the recent IMN Single-Family Rental Investment Forum in Miami, Florida on May 21-23, 2018, this was one of the major discussion topics. A study has shown that the number of Americans living in rental properties has increased by 37% since the Great Recession.

Millennials

     This generation is staying home with their parents longer. High student loan debts and a tight job market, with little overall increase in pay, have not helped. They have witnessed the crazy housing market, when some of their parents lost their homes, and the stress it caused the family. All of these factors contribute to staying home longer. Some Millennials are not interested in owning a home; they don’t want to be tied down and like to stay mobile. If they buy, they are waiting five years later to buy than those in the older Generation X. The new trend for Millennials is home ownership without occupying the property. They are buying rental investments and living in other areas. They find value in having the availability to move freely, generate equity, and diversify their investments.

     Millennials have higher expectations, whether they own the asset or rent it. They want better distribution of products and services, affordability, and quality housing with luxurious amenities, including gym, pool, Wi-Fi, and entertainment nearby.

Ownership vs. Rentals

     Healthcare and college education costs continue to rise much more quickly than middle-class incomes, further limiting the ability of Millennials to buy as early as their parents. Mortgage interest rates have stayed low during the recovery from the recession, but are expected to rise now, further limiting the ability for the younger generation to buy homes.

     Lower-income families will remain as renters and their chance to achieve the “American Dream” of home ownership and the stability this has brought to their Boomer parents, are diminishing rapidly. The top 5% are doing just fine, with annual income growths of 6.9%. Earnings of the top 20% are also good at 5.7% yearly. However, incomes are growing at around 4% for the remaining 80% of the American population.

     This is the sector that contains almost all of our tenants. Over the short term, this is good news for rental income investors. But will there be less stability, over the longer view, if this continues?

     Home ownership percentages in the wealthier neighborhoods ranges from 60 to 79%. In the poorer areas, from 46 to 59%. Lower-income Class C properties will continue to be the bread and butter areas for rental investment, accentuating the need for good professional property management, especially in such areas.

     I was fascinated to learn that there are almost 8,700,000 owners who have from one to ten homes, 58,960 owners with 11 to 25 properties, 11,502 owners who have 26 to 100 properties, 879 owners who have 101 to 500 properties each and 56 of the biggest investors with more than 500 properties each. My Miami market ranks within the topmost 13 markets in each of the size ranges.

Home ownership tenure

     This figure has increased from the long-standing rate of four to five years, to as much as 8.05 years in 2017. This was caused by a variety of reasons as the value of their homes recovered from the recession of 2008. Lack of equity, inability to move up, and less attractive financing, were other main reasons. The length of tenure is expected to drop soon.

Monthly foreclosure activity

     This activity is now back to normal levels at about 75,000 vs. the peak in 2009 and 2010 when it reached 350,000. There are still good buys available in the off market from some sources who are obtaining them directly from the big banks

Where do we go from here?

     There are 13 million rental properties nationwide and projected to increase to 17 million by 2024. Two million of these properties are owned by institutions. The potential to own properties is very good. With capital flowing into rental housing and attractive interest rates, more supply will be added to the rental market. The end users are willing to pay more for quality rental properties which will help to enhance the quality of life and a better environment for all.


Tony Drost, Chairman
First Rate Property Management, Inc.
Boise, Idaho
Contact me for more information about the Investment Real Estate and Property Rental markets in Boise and Idaho.

What Potential Rent Control in California Means for Idaho

Jim Sharone - Wednesday, May 30, 2018

Tenant advocates in California have received enough signatures for a ballot initiative to repeal the Costa-Hawkins Rental Housing Act. This would allow extreme Rent Control in California cities and counties where many saw rents increase by 40% over the past 3 years.

                The purpose of Rent Control is to give cities and counties the ability to better deal with affordable housing by not allowing rents to increase at such a high rate. However, many feel that this will not work and will actually “pour gasoline on the fire of California’s affordable housing crisis”. Many people will stay in a rent controlled unit for many years well after their need for affordable housing. This still limits the amount of affordable housing for those who really need it.

     If this initiative is passed, many landlords’ investments will no longer be profitable. If this happens, there are fears of foregoing repairs and letting buildings deteriorate, or even selling and moving their investments somewhere else. If the current landlords sell to owner-occupants, which is likely, that property is no longer on the rental market, further limiting affordable housing.

               In Idaho, this could result in even more people from California investing in Idaho properties. This could continue to drive the property values, and therefore, rents higher as well!

We will have to wait and see what happens this November!!!

Full article below: California Draws Battle Lines in Rent Control Conflict


 Kathy Fettke | 28 May 2018

The battle lines have been drawn in the war over California rent control. Tenant advocates announced recently they have enough signatures for a ballot initiative to repeal the Costa-Hawkins Act, which could open the floodgates for extreme rent control in California and put some landlords right out of business.

Why Rent Control Doesn’t Work

While the idea of rent control may sound like a nice one (help keep real estate affordable for families who otherwise would be forced to move), the concept is, by nature, easy to exploit. Tenants may hold onto low-rent apartments for years despite employment gains and higher salaries, crippling landlords’ ability to collect market rents for decades. This not only hurts the landlords, it also eliminates affordable housing for people who truly need it and creates a stagnant rental market.

Rent control also creates a losing situation for landlords in terms of operating income. If a landlord cannot generate enough money to maintain properties, they will be forced to forego repairs and let buildings deteriorate. In California, that can lead to tenants being able to legally refuse to pay rent while being protected from eviction if a trigger maintenance issue arises. Landlords often tend to opt out of the rental game, sell their properties, and put their money elsewhere. If they sell to owner-occupants, which is likely, that removes those rentals from the market entirely and, again, reduces available housing for the renters who desperately need it.

We are on the Cusp of Massive Rent Control

If this ballot measure wins voter approval, investors with property in California are on the cusp of what could be a massive shift toward rent control. Cities that currently have rent control ordinances include Berkeley, Beverly Hills, East Palo Alto, Hayward, Los Angeles, Los Gatos, Mountain View, Oakland, Palm Springs, Richmond, San Francisco, San Jose, Santa Monica, and West Hollywood. Notably, Thousand Oaks has rent control but is phasing it out.

Because a repeal of Costa-Hawkins will substantially broaden the legal alternatives for cities to implement rent control, California landlords currently operating under the protection of the act may need to rethink their investment plans if the measure is approved in November.

Investor Insight:
If this ballot passes and you own California rental real estate, you may need to reevaluate your investment strategy.


Jim Sharone, Vice President
First Rate Property Management, Inc.
Boise, Idaho
Contact me for more information about the Investment Real Estate and Property Rental markets in Boise and Idaho.

Property Taxes! What to Expect

Tony Drost - Tuesday, May 15, 2018

It's that time of the year again where Ada County homeowners and Landlord's will be receiving their tax assessment notices.  On average, we're anticipating about a 12% increase in assessed values on residential homes.  Small multifamily (2-4) units will see about a 15-18% increase on  their assessed values.  The range for apartments is great, at 3-15% with the average only being about 5%.  For 2018, single family homes are appreciating at about 1% per month while multi-family are appreciating at 1 to 1.5% per month.


Tony Drost, Chairman
First Rate Property Management, Inc.
Boise, Idaho
Contact me for more information about the Investment Real Estate and Property Rental markets in Boise and Idaho. 

FRPM Metrics

Melissa Sharone - Friday, May 11, 2018

Below is a summary of some of the metrics that we are tracking for our leasing department.  It showcases our low vacancy rate and  our high renewal rate. As you can see, our vacancy for all of 2018 has been significantly lower then the national rate.   It also highlights our average days on market which is 12 days.  What this illustrates to our investors is that on average their properties are getting re-rented 18 days prior to the old tenant vacating.   Things are still looking strong in this market with high rents and low vacancies. We will see what the busy time brings. 


Melissa Sharone, President
First Rate Property Management, Inc.
Boise, Idaho
Contact me for more information about the Rental markets in Boise and Idaho.

1st Quarter Vacancy Survey

Melissa Sharone - Monday, May 7, 2018

NARPM has published its 1st quarter vacancy survey for the 2018 year.  The rents are still increasing for both multi and single family.  The overall vacancy was up just slightly from last quarter, but that is pretty standard  for this time of year.  FRPM has a current vacancy of .8% which is a record for this time of year.  There is still more demand for housing than units available so things are renting up very quickly with minimal turn time.  The market remains strong and FRPM predicts that it will stay that way through the summer.  


Melissa Sharone, President
First Rate Property Management, Inc.
Boise, Idaho
Contact me for more information about the Rental markets in Boise and Idaho.

Federal Reserve Interest Rate Trends

Julie Tollifson - Friday, April 27, 2018

Many real estate investors are aware of how critical interest rates are in the evaluation and performance trajectory of their investment properties. As a result of the 2008 financial crisis the Federal Reserve (the Fed) is taking unprecedented action and raising interest rates more frequently than they have in the past. In the past 3 years the Fed has raised short term interest rates 6 times. It has been suggested that they increase exponentially by the end of 2018.

This article also suggests that investors to run sensitivity tests upwards of 5% interest when developing pro forma on ventures.

On Wednesday the 10 Yr Treasury Yield hit a level (3.04%) not seen for the past seven years, i.e., since 2011.

See Full Article Below


10 Yr T Yield - Past 8 Years

The Federal Reserve rate setting committee meets next week, and five more times thereafter during 2018. The Fed recent history of raising rates is not consoling.  Since December 2015 through March 2018 the Fed has raised short-term rates six times.

None of us know what will happen to rates in the next 6 - 12 months.  However, members of the Federal Reserve rate setting committee have been saber rattling.  Some have suggested that the Fed will increase short term rates three or even four times during the balance of 2018.  Looking out further into an even less discernible future, they have suggested another three rate increases in 2019.

What does that portend for long-term interest rates?  Who knows?  However, if you are running development pro forma on projects it would be advisable to run sensitivity tests at 5.0% interest up to 6.0% interest.

Obviously, the arithmetic of increasing rates is to drive down the amount of loan principal that can be supported by higher debt service burden.  Debt Service Coverage mandates will eat into loan proceeds.  


Julie Tollifson, Leasing Team Lead
First Rate Property Management, Inc.
Boise, Idaho
Contact me for more information about this blog.

Boise Apartments Still Booming

Tony Drost - Monday, April 23, 2018

Moe Therrien with Valbridge Property Advisors recently submitted his quarterly survey.  This is a very thorough report that includes historic data on rents and vacancy by bedroom count. Additionally, it breaks down apartments from those with full amenities, Boise downtown, and Low Income Housing. 

 The data is supported by providing multi-family building permits, Ada County single family home prices, and employment statistics.  Currently, there are just over 2,200 units within the Boise area under construction with another 3,300 proposed to start within the next 6 months. Year to date there are over 2,400 units that have been completed since 2016. The survey is concluded with a Boise Vacancy Report reflecting how many vacant units each project has. This report includes Rent Ranges, number of occupied units, total units, and the percent of occupied units at each complex. Boise is still growing very quickly and is projected to continue to grow and remain in high demand among renters. Please see the attached survey from Moe Therrien for additional details. Moe Therrien with Valbridge Property Advisors Survey 


Tony Drost, Chairman
First Rate Property Management, Inc.
Boise, Idaho
Contact me for more information about the Investment Real Estate and Property Rental markets in Boise and Idaho.

FRPM Vacancy Update

Melissa Sharone - Tuesday, February 27, 2018

2 months in to the 2018 rental year we are still seeing low vacancy.  FRPM vacancy right now is 1.12% which is slightly higher than our rate in January but still low compared to the national average.  We are seeing lots of activity on the rental side with increased amount of phone calls and property inquiries.  The market trends and vacancy are still allowing for rental increases. FRPM predicts that this low vacancy trend and higher rates continues as we approach Spring/Summer, which is the peak season for rentals in Boise area.  


Melissa Sharone, President
First Rate Property Management, Inc.
Boise, Idaho
Contact me for more information about the Rental markets in Boise and Idaho.

What to Expect in the Rental Market in 2018

Tony Drost - Tuesday, February 6, 2018

Recently Forbes Real Estate Council posted an article, titled, Four Trends that Will Impact Rental Markets in 2018, and we have included the full text below.  The article below was written by Nathaniel Kunes with AppFolio, which is a property management software.  We enjoy comparing national trends to what we are seeing here in the Boise and surrounding areas.  One thing for sure, Boise seems to fit their #2 and #3, which are population shifts, affordability, and hot markets. 

1.  Occupancy Rate Fall and rent Growth Slows: 

Even though we don't consider Boise a major metropolitan area, we're still finding the Boise market to be hot.  This article talks about most areas within the US, especially single family rentals, slowing with falling occupancy rates.  We must admit, that January has been a very slow month for single family rentals here in Boise, but we do not believe this is due to any negative market trend.  Historically Boise rentals, especially single family rentals are much more difficult to rent in the winter months.  When it comes to single family homes, it's best to have leases expire outside the school year.  People just don't like to move while their kids are in school.  Click here to view the SW Idaho Chapter of the National Association of Residential Property Managers 4th quarter rental market update. 

2.  Population Shifts and Affordability Reshape the Landscape:

According to this article, there are two things that drive the rental market - population shifts and affordability.  Boise's population and job growth continue to climb and although home and rent prices also continue to rise, their still considered very affordable in comparison.

3.  Hottest Market Opportunities:

Boise fits their definition of a hot rental market because of the job and population growth.  According to this article investors looking to expand their properties should consider regions like Boise.

4.  Tech Disruption:

Technology was late to getting to property management, but it's here now and moving at a rapid pace.  It will surely play a role.  Let's be real, technology is expensive and unfortunately I think we'll see further considaton of property management companies which I think long-term, will hurt the non-institutional investors.


Nathaniel Kunes, Forbes Councils

As we embark on 2018, there is a multitude of changes and trends in the real estate market that will impact all aspects of the rental industry, and it’s important for real estate professionals to explore them. From investors keying into market growth areas to property managers making adjustments to meet tenant expectations, creating strategies that align with market trends will lead to greater success in 2018 and beyond.

1. Occupancy Rates Fall And Rent Growth Slows

Rent demand, while hot in major metropolitan areas, is actually slowing in most areas of the United States, especially in single-family rentals. Where we’ve been seeing 6–8% growth in rental prices in years past, we’ll see that trajectory stall out, eventually nearing historical rent growth average (around 2%). Much of that may have to do with falling occupancy rates, which often result from increased supply in some cities as construction catches up. There is also a pent-up demand for moving as many people have been in their current rental much longer than historical trends.

With less demand, property managers will need to get more aggressive about attracting and keeping renters.

To attract residents, smart marketing is critical. Investing in automated vacancy posting syndication and moving marketing spend to areas with the highest returns are sure-fire ways to be certain posts gets attention, and quickly.

It’s also important to differentiate when trying to fill vacancies. Through unique perks or amenities, property managers can not only attract more renters but also target specific segments of renters through the amenities they offer. For example, if in a market that caters to younger generations, property managers should consider adding common areas throughout a building to inspire a sense of community, something that millennials and Gen Z value.

However, cool amenities alone won’t keep the renters. Retaining them requires meeting tenants’ needs and expectations. Having systems and the appropriate technology in place to handle maintenance requests immediately can dramatically change tenants’ perceptions of their living situation and make them more likely to renew a lease. Offering excellent and quick service is essential in keeping renters happy.

2. Population Shifts And Affordability Reshape The Landscape

There are two things that drive the rental market — population shifts and affordability. As affordability becomes a more pressing issue for many Americans, we will see the government, especially state governments, stepping in more frequently to offer affordability programs and tax credits. There already exist laws in many states that require a certain ratio of every new residential building to provide affordable housing. Additionally, for people who work in expensive residential areas but cannot afford housing there, we’re starting to see local movements and initiatives working to help those people afford to rent or buy housing. In San Francisco, the city is spending $44 million for a teacher housing initiative, enabling teachers to live and work in one of the most expensive cities in the country.

The biggest trend in affordable housing is the shift away from public housing to housing choice voucher programs. This will privatize much of the affordable housing stock and require a greater number of property managers to understand and be able to manage affordable housing programs. There is also a lot of compliance involved in both affordable and rent-controlled housing, so, if not an expert in this type of housing, investors should look to a specialized property management company to manage this kind of property.

Demographic shifts will also reshape parts of the real estate landscape. An increasing trend for baby boomers and the empty nester population is to actually move out of the suburbs and into urban environments, often choosing to rent instead of buy. This has dramatically changed the profile of the modern renter to one that spans age demographics. It’s important for property managers and investors to take into account both the older demographics and the youngest demographics (Gen Z) when determining the most appealing spaces, amenities and how to align service with tenant expectations.

3. Hottest Market Opportunities

While we have all heard about the popularity of moving to cities like Nashville — the entire Southeast, in fact, and the Northwest are becoming a popular living destinations for many. After all, hot rental markets tend to follow job and population growth. Investors looking to expand their properties should consider these regions.

Other, non-geographic opportunities are senior housing, affordable housing and commercial. Senior housing, in particular, will be a huge market segment. The population of U.S. adults 65 and over will more than double by 2060, reaching 98 million. That will be nearly one-quarter of the population, a number that reinforces a strong need for senior housing. Taking multifamily complexes and converting them into independent 55-plus communities could be a smart choice for developers and investors, depending on their local senior housing needs.

4. Tech Disruption

The use of intelligent systems, machine learning and AI applications in software will, increasingly, be a huge agent of change in the real estate industry. This disruption will alter everything from property valuation all the way to property management — an area where the use of AI and chatbots can offer tenants better service and automate maintenance workflows.

Consider this scenario: A tenant finds a toilet leaking and can alert management via text. They then receive an automated response from a chatbot communicating next steps, and the tech automatically creates a work order for the vendor.

Voice technology will also become huge in property management, potentially even allowing renters to pay rent by voice and make maintenance requests.

Tech disruption even changes the game in real estate marketing, letting agents use virtual reality to offer prospective tenants a tour of the inside of a home or apartment unit without ever meeting in person.

Ultimately, real estate professionals who are able to act on some of these emerging changes will find greater success. They’ll make more strategic business decisions that align not only with the ever-changing variables of the real estate landscape but also with the evolving set of modern-day tenant expectations, giving them an edge with market competition.

Forbes Real Estate Council is an invitation-only community for executives in the real estate industry. Do I qualify?


Tony Drost, Chairman
First Rate Property Management, Inc.
Boise, Idaho
Contact me for more information about the Investment Real Estate and Property Rental markets in Boise and Idaho.


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