…a community manager may occasionally resist a rate increase for a long-time resident or one who has become valued over the years. Business is business, however.
“When they start to say, ‘Oh, Mrs. Johnson has been here six years,’ we try to get them away from the emotional aspect of pricing,” he said. “We say if we really wanted to lift our rents and maximize our revenue, we have to make some tough decisions, and some people who can’t afford it may have to move out.” [Emphasis Mine]
As owners, operators and property managers who doesn’t love getting top dollar rents?
Aaron Task speaking on Yahoo Finance’s Daily Ticker show says that: “Owning apartment buildings and renting them out is a great business.” He’s not as sure about the single family REO to Rentals (RtR) model though. Click the image below to view the video, at about 1:44 in he’s talking about apartment building investment:
The Fiscal Times had a piece the other day reviving the good old rent vs. buy meme. The new angle was that Zillow has updated its method for comparing the costs of renting and the costs of buying and uses it to produce what it calls a ‘Breakeven Horizon.’ Besides sounding vaguely like the title of an old sci-fi movie, beyond the breakeven horizon is where buying a home makes more sense than renting and in theory the less time to the horizon, the more the market is tilted towards buying.
Now I have to admit I was intrigued with the thought that Zillow had re-examined their methodology because as I have written about earlier, their previous calculation ignored the real costs of maintenance, repairs and saving up for replacing big expensive things like the roof, the furnace and the driveway and that is a pretty big chunk of money over time. Industry figures for repairs and maintenance on single family housing run from one to three percent of the home value. Have a look at the chart* below to see how much a relatively modest 1.5% adds up to over time.
Tom Barrack of Colony Capital on what’s really happening in US real estate from an investor’s perspective. The clearest, most cogent look at the state of commercial, multifamily and single family markets today and where the opportunities are. The first five and a half minutes is about Europe and the bottom line there is don’t but after that it is all gold. If Tom wanted to be one of those real estate ‘gurus’ he could package this video with a big notebook and some advertising and sell it for $10,000- and it would be better than any of the other stuff out there. And you get it for free. I’ve watched three times and get an extra little nugget each time.
Saw a very interesting piece by Daniel Cunningham, President of Leonard Property Management on how revenue management for apartment building investments might already have seen its best days of growing revenues. Dan compares it to what’s happening to other industries such as airline travel and hotels where consumers can quickly see all the pricing for all the competitors in the market or product they’re searching. With Craigslist and some patience renters can do that now Dan says. See the short to the point article here.
From MFE Magazine: “For years, online review sites have been the bane of apartment pros, a place where the haters could post nasty missives about a community, whether true or not. But while there are still plenty of negative nellies online, like it or not, review sites have become the go-to source for renters who want to check out a community before deciding to live there. Join us for this in-depth Webinar on how to get the most out of online reviews, while keeping the haters at bay”.
In a piece called Positioning for a Housing Recovery PIMCO says that the risks to housing have been overstated and while prices may continue to fall there are opportunities in the mispricing of that risk. They believe that the risk of the 11 million underwater home loans all becoming delinquent and going into foreclosure is much lower than most think. They also point out that the record low interest rates have created housing demand from large institutions (Like PIMCO, and individual investors too) searching for positive returns.
One of the opportunities they list is in apartment building investment, either through equity (owning) or debt (loaning). However they pass over multifamily in favor of REOs-to-rentals and distressed housing debt. It’s ironic that they would favor buying large numbers of single family homes to rent because the logistical nightmare of the scattered homes is what drives most real estate investors to apartments and other commercial real estate. The convenience of having 10, 20, even 200 units or more at one location on a single property on top of the economies of scale available make owning multifamily a much better investment.
While they do acknowledge the challenge of REOs-to-Rentals:
However, investors must be mindful of the operational complexity and illiquidity of a single-family rental portfolio. Managing a nationally diversified portfolio of rental properties presents unique challenges of surveillance and scaling, and procedures for maintenance and leasing must be designed to help protect earnings.
… Somehow that doesn’t lead them to picking multifamily investment. Are you a real estate investor who started out in single family properties and moved on to apartment buildings? We would love to hear your story-
As reported by MHN Online. The Towbes Group, a Santa Barbara multifamily company has imposed a no-smoking policy in the 13 multifamily properties it manages in the Santa Barbara area. Common areas and individual units will be smoke free in 6 months.
We had received an increasing number of concerns from our residents regarding second-hand smoke
The percentage of Californians who smoke is down to around 15 percent
Recent California legislation allows landlords and property owners to offer “smoke free” living environments at their apartment communities.
We are committed to giving our residents the best living experience possible in their homes.
The cost to turn an apartment that has been smoke free is significantly less than that of an apartment that has been smoked in.
The most important reason is the ability to give our residents a ‘healthy’ option in multifamily housing.
And the results: “Out of those numbers [2,000 units in 13 communities], I received two complaints from residents who were not in agreement with our new policy. In addition, we did have one resident let us know they would be moving out of one of our communities. If anything, that very small number validated our decision to go smoke free. We really believe that we will attract a greater number of prospective residents by offering a ‘smoke free’ living experience.”
Not bad eh? Create a more healthy living environment for your residents while reducing turnover costs. Have you done this with your apartment buildings? If you have please share your experiences with us.
From my friend Heather over at Behind The Leasing Desk Consulting: “fact: I ♥ Satisfacts! Check out their new report on the mind of the online renter for some great insight into what your potential residents are thinking.”
From Satisfacts: “We asked, and now it’s ready for YOU. Getting Inside the Head of Today’s Online Renter is the most comprehensive analysis ever conducted in the industry on the impact of technology and social media on apartment marketing and operations.” Get the report here