Rental Restoration

This is the third in a series of blogs pertaining to the special considerations of renting new construction units.

Is there a code that requires me to install window coverings for a tenant?

In many urban areas, this is included in Landlord/Tenant code, but not in Seattle.  However, you have to ask yourself if you’d rather be the one to put holes in the walls or trim or would you rather the tenant perform his own handywork?  Also, if you plan on putting the house- or any adjacent units- on the market before the end of the tenancy, do you want to be in control of the exterior appearance?  It’s absolutely possible someone will want to use a Union Jack flag as a curtain.  (Obviously, if there is a requirement for neutral window coverings already written into a community’s CC&Rs then you’re covered… but all of the SFHs and townhouses I’ve seen lately in Seattle don’t have HOAs.)

Do I have to install a washer/dryer?

Nope.  However, your place will rent much faster with a washer and dryer already installed.  And again, do you really want a tenant doing a bad washer install and ending up with water soaking through the sub-floor?  Here’s a good idea:  Get your property manager to find some decent units on craigslist for a couple hundred dollars and have them installed by someone you trust to do it right!  Write up an addendum to the lease that says that the w/d are provided for convenience only and tenant use is at their own “risk”-  as in, “We’ll remove it if you want us to, but if it breaks during your tenancy, we’re not fixing or replacing it.”

Who does the landscaping?

The leases we use state that it is the tenant’s responsibility to maintain the yard in “good” condition.  It goes on to say that the landlord can, at the tenant’s expense, hire a service if the tenant fails to do so.  However, a tenant’s idea of “good” and an owner’s could vary greatly.  We recommend that with new construction, properties that will be marketed for sale during tenancy and properties with specialty landscaping, the owners provide a service as part of the rent.  Most property management firms have great relationships with vendors such as landscapers and can obtain services at a very reasonable rate.

Eleanor

BusinessWeek just came out this article about falling apartment rental rates and particularly poor performance amongst luxury units.  My recent post on “February’s Rental Market Trends” didn’t address “apartment” units in terms of the large apartment communities we see in urban areas because my firm tends to manage SFHs, condos and buildings with 9 units or less.  Safe to say that the condo rental market will follow along with the apartment market.  But the BusinessWeek article does bolster what I’m seeing across the board in terms of luxury rentals.  It also lists Seattle amongst the top 25 metro areas with the biggest rental rate drops… we’re number 5, to be exact.

I’m continuing to have daily meetings with SFH owners who feel like the price opinions I’m giving them are a little on the low side.  I’m always willing to start a house on the high side, but if I’m hearing crickets or getting negative price feedback from potential tenants within 7-10 days, that’s a clear indication we’re too high.  I still think the SFH rental market in Seattle has the potential to jump back up in the summer as it usually does…  although in this market, predictions are dicey at best.  We have to stay on top of this thing on a week-by-week basis.

What are you seeing???

Eleanor

What should we be thinking about with new construction on the rental market?  Of course, it all depends on the end game.  My brother and his wife are looking to gobble up some new construction SFHs at about $100k a piece that are wilting on the sales market in suburban Houston.  (Sigh, the Seattle construction cost index cannot conceive of building even a small garden shed for $100k…)   They want to buy and hold, so their considerations are far different than the builder who wants to wait out “today’s market challenges” (my go-to euphemism) for a year or two and then sell.

For the purposes of this first blog in my New Construction Rentals series, I’ll focus on actual questions I’ve fielded from builders recently, in no particular order:

Should I really rent this out?  I won’t be able to sell it as “new” next year!

To be honest, I am thinking that the townhouses completed in 2008 and 2009 will still be the “new” townhouses in 2010 and 2011.  Why?  Well, I’m just not seeing a lot of ground-breaking out there for new developments… as in, there won’t be too many vintage 2010 units with which to compete!

I always ask builders (and Accidental Landlords), “Would you rather hemorrhage or bleed slowly?”  It was a question I had to ask myself last summer when I was trying to sell a house I’d just finished remodeling.  Did I want to immediately lose at least $60k or did I want to rent it out and lose about $500 a month?  The choice was clear… it would take about 10 years of losing $500 a month to equal out the immediate $60k loss- which is to say nothing about the tax implications of carrying a rental during that same time frame!

How can I keep it looking new?

Across the board, there’s no better defense than CAREFUL TENANT SCREENING.  Of course, you have to stay within Fair Housing Act guidelines, but performing thorough tenant screening is paramount.  The better the tenant, the better condition they will leave the unit!

Aside from that, you’ll want to work with a property manager or other professional to anticipate where the most wear and tear occurs.  Number one on this list is carpet and flooring, of course.  For one builder, I found some inexpensive but handsome padded benches to put near the main entrance and emphasized with potential tenants that the owner would appreciate that shoes not be worn in the house.  Although there’s no way to monitor it, this idea is among several tricks and incentives you can use to get tenants to comply.  (For my money, there is no worse flooring solution for a rental than carpet… but more on that later.)

Walls and appliances are next on the “Most Likely to Sustain Wear and Tear” list.  Walls are easily patched and painted.  However, today’s stainless trend brings challenges to rentals because few renters know how to properly clean stainless.  In my own kitchen, my dishwasher has swirl scratches in the stainless veneer where my well-meaning housekeeper tried to give it a good scrub.  I now have a “Care and Feeding of Your Stainless Appliances” handout that I give to tenants along with a bottle of the best cleaning fluid available.

Tomorrow, we’ll tackle a few other new construction questions.

Eleanor

Whoa.  I spent all day at REBar Camp in Seattle.  What an informative day!  It was all about real estate marketing and maximizing web 2.0.

First of all, the whole thing appealed to the Organizational Psychologist in me (I did get a Masters degree in the subject, afterall).  The format was very self-organizing, much like the “Open Space” meeting format.  Find more information about Open Space meeting here…http://www.youtube.com/watch?v=dBn-OVHG2v8 The day just sort of evolved based on what was important and pertinent to people.  It was really cool because people of varying understanding about the tech side of real estate marketing (and marketing in general) were afforded opportunities to learn and grow.

It’s funny how much of this is intuitive for me.  Yes, I’ve been involved in marketing and sales in one capacity or another for my entire professional life, but the concepts discussed today are the latest in leveraging technology to achieve compelling marketing! I’ve never had to do the technical part of marketing myself… I’ve always been the strategist, the face, or the wordsmith.  Some of these highly technical concepts that I’d never heard before were things I’m already doing or have been thinking about– BECAUSE THEY MAKE SENSE!

I’m going to do everything I can to position myself and my firm as part of the “what’s next” in real estate and property management.  The “information age” truly is giving way to the “creative” or “ingenuity age”.  Survival has always been about adaptation and thriving is all about innovation.  There will always be gold standards– and nothing will ever beat a live person-to-person connection– but the innovation here isn’t necessarily in the philosophy, it’s all about the tactics and delivery methods.

Were you there?  What did you think?

Onward and upward!

Eleanor

A good portion of my day is spent researching rental trends and then being out and about giving people opinions about a fair rental price for their property.  The consumers—and real estate sales agents–  I speak with are split almost 50/50 in feeling like the current sales market applies to the rental market in terms of lower prices and the converse that the depressed sales market correlates well to higher rental prices.

So, who’s right?  Well, it’s not so simple.  (You were probably afraid that would be the answer…)  And since it changes so frequently, I’ll be updating you on what we’re seeing “on the ground” at least monthly.

Rents remained strong over last summer, even as the sales inventory reached new highs.  At Seattle Management Group, we saw multiple applicants and packed open houses resulting in quick turn-arounds, just as we have most summers.  Of course, on the way to and from those packed open houses, we passed the multitude of For Sale signs beginning to accumulate cobwebs (on my own personal properties as well—so don’t for a minute think I was feeling smug).  Usually, both the rental market and the sales market are usually hottest over the summer and then cool off in late fall.  In general, it seems nobody wants to spend their Thanksgiving or New Years amongst packed boxes and change of address forms.

We began to get concerned that the For Sale signs that limped through the summer would soon become For Rent signs— resulting in saturation in the rental market during the slow months that would bring prices down.   We were also concerned about the effects of the “Accidental Landlords” (see other blog post) would be both in terms of rental prices and how many of those people who were fed up with the sales market would become management clients and how many would brave the rental market on their own.

Now that spring is starting to spring and the slowest part of the market has passed what were we right about?

•    A marked increase in inventory:  We saw a heck of a lot more homes on the rental market this winter.

•    Rents did go down a bit on mid-range houses (those that would typically sell between $350k-$600k and rent for $1400-2500).

•    Time on market seemed longer, but only in comparison to summer… year-over-year it remained about the same.  However, time on market was greatly affected by whether or not we came down on price- even small amounts like $100 off made a difference.

•    A great influx of townhouses on the market:  Builder inventory had to go somewhere and those builders who were able to convert their construction loans or amend the terms to allow for leases are happy to see even a modest cash flow.

•    As expected, most of our new business came from successful sales agents.  We forged many new and fruitful relationships with sales agents who wanted to offer their clients an option before the client jumped ship altogether.  These agents were willing to lose the listing for now, but not willing to lose the client which is a strategy that will pan out well for them in the long run.  (Even though we do some sales, in my firm, to ultimately seek the sales listing on a property that was referred to us by another agent will get you fired.  We depend on our partnerships with sales agents!)

What surprised us?

•    It was remarkable how long the For Rent signs sat that were posted by owners. (I now refer to this length of time for the usual red For Rent signs as “Days on Lawn”.)  I feel a lot of compassion for these folks who had already been battered around the ears by the sales market and were now limping along on the rental market.  However, with some homeowners tying their rental rates to their monthly mortgage payments… “I pay $2900 in mortgage, so I really need to get close to that in rent.”… it wasn’t entirely surprising.

•    It was also surprising how many real estate sales agents were trying to be helpful to their by converting their sales listings to rental listings themselves rather than referring out to a PM firm.  Most sales agents I know have no desire to be in property management, but found themselves in a position where it became a necessity.  I can’t really comment on how successful this plan was for the agents or their clients.

And the biggest surprise?

•    The luxury market!  This topic merits its own blog post, but in short, there has been a huge jump in inventory of luxury rental homes available, resulting in lower rental prices.  However, luxury home owners got to be luxury home owners by being pretty savvy, so they still see the benefit of collecting $42,000 in the coming year in rent, rather than losing several hundred thousand.  Although the math is always so easy in theory and so difficult in practice.

What’s next?

Well, we shall see.  But seriously, I think the news looks good for the rental market in Seattle:

•    Early indications point to a definite increase in inventory, but along with that is an increase in demand with folks who are still gun-shy about the sales market or are having trouble scoring a loan.

•    Inventory is down in the sales market and spring brings sellers some hope, which makes me think some of the houses that lagged on the rental market will return to the sales market.

•    I expect rents for single family homes to regain what they lost in the winter, but not to gain much over last summer’s prices— hey, steady is good these days!

•    Luxury rents will probably stay lower than those owners might hope, but should enjoy a slight bounce up or at least no further reductions.

I’ll update this blog with any trends I spot and will do another full report in March.

Please contact me with any questions or comments and with trends you’re spotting in the rental market!

Eleanor

Here’s an article that appeared about us in the North Seattle Herald, Queen Anne News, Capital Hill Times, South Seattle Beacon and Madison Park Times.

http://northseattleherald-outlook.com/main.asp?Search=1&ArticleID=27533&SectionID=8&SubSectionID=8&S=1

Eleanor

Most people prepare well for their career either through education or apprenticeship.  Others find their career path evolves as they assume new responsibilities on their way up the ranks.  Very few wake one day to find that they are Chairman of the Board, Director of Marketing and Sales, Labor Relations Manager and Janitor of their very own company worth several hundred thousand dollars;  also known as being a residential landlord.

Throughout the Puget Sound and across the nation, the current housing market conditions are creating a new career called, “The Accidental Landlord”.  The Accidental Landlord is a savvy homeowner who has decided to ride out the rocky real estate sales market by leasing homes they otherwise would have sold.  When the chips are down and prices of investments and commodities plunge, most financial advisors remind us of the ancient tenet of “Buy low, sell high…” and encourage clients to hang on to their assets if at all possible and real estate is no different.

If you have recently become an Accidental Landlord, you should be congratulated for making the difficult decision to hang on to what is probably a substantial portion of your net worth.  In the same breath that I offer you congratulations, I offer you a great deal of empathy… and some advice.  You are embarking on what will be a highly rewarding but at times difficult path and whatever you do, don’t go it alone.

The first thing an Accidental Landlord should do is consult a professional and by professional, I don’t mean your brother-in-law in Atlanta who has owned several rental properties over the years.  There are few places in the country where the ROI is quite as high for landlords or potential landlords who consult an attorney, a professional property manager, and/or join an association of professionals such as the Rental Housing Association.  Washington State boasts some of most intricate landlord/tenant laws, with Seattle’s local codes easily being some of the most arduous and detailed in the United States.  By becoming a landlord, you are indeed subjecting yourself and your assets to intense liability if you fail to follow the letter of the law and there are virtually no accidents or omissions that are looked upon lightly by the local judiciary.  Nothing would be more heartbreaking than avoiding losing tens of thousands of dollars on the sales market, only to lose the whole house on the rental market!

Hopefully, the professional you consult will look at your situation in a holistic manner and help you identify some of the primary crucial issues such as:

Which documents does your local municipality require for a legal lease?  Are there additional addenda to the lease that are appropriate for your property beyond what is required?   What is your exit strategy:  What is your ideal outcome and what your timeline in terms of the end-game?   What needs to be done to ready the house for a renter?  What sorts of liabilities exist in your house that could pose a risk to the health and safety of a tenant?   Where will you set up the tenant’s trust account for their deposit?  Do you have the proper insurance in place?  Do you have an understanding of the Fair Housing Act regulations?  If you are a member of a homeowners’ association, what are their restrictions and policies?  And of course, when are you taking the RHA’s Landlord/Tenant law class?

These are the primary questions you should ask because they get you to slow down and consider what is necessary to mitigate your liabilities and design a long-term plan.

Don’t be tempted to skip those primary questions and immediately launch to the secondary- and sexier- questions such as:  How much rent will you charge?  Do you want to allow pets or not?  What sort of deposit is fair and gives you proper protection?  How will you market the property?  How will you screen tenants?  What length of lease do you desire?  And the sexiest question of all:  who will handle the middle of the night call when the basement bathroom has flooded because there’s a diaper jammed in the ejector sump?

And yes, you’ll need to consult with your professional resources to make these decisions as well.  Recently, we have seen a lot of Accidental Landlords set their monthly rental rates based on their mortgage- what you pay for your mortgage and what the market will bear in terms of rent have nothing to do with one another.  As far as screening tenants, federal regulations prevent easy access to credit reports- an absolute must when selecting a selecting a tenant- and the time to decide how you’ll obtain a credit report is not once you have a prospective tenant standing in front of you.

Again, congratulations on making a smart move in deciding to use this market as an opportunity to become a landlord.  In most cases, it truly will be a profitable decision in long-run.   We are fortunate to have such a wide variety of excellent resources to ensure the Accident Landlords in the Puget Sound don’t become another unfortunate casualty of the current market.

Eleanor