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Legal Issues Unique to the Design-Build Project Delivery Process

Written by Landlord Property Management Magazine on . Posted in Blog

By Design Everest

DesignBuild

Although design-bid-build has been the traditional method for delivering projects to clients, the popularity of the design-build project delivery method has been growing steadily. The design-build delivery method typically shortens the time needed to complete a project since there is a single entity working on the project, but this also entails that all responsibility for the project is held by a single designer/builder.(1) This leads to a unique set of legal issues that apply to the design-build project delivery method. These legal issues can be categorized under the following six divisions:

• Setting Checks and Balances.
In the design-build model, the design builder does not act like a typical engineer who would act as the client’s consultant. Instead, they are often incentivized to create a design which will value cost and constructability far more than other criteria that an homeowner would value.(1) For this reason, the owner must contractually set up checks and balances, which can be done by addressing performance, payment and regulating other conditions.(2) One way to do this is to develop a detailed specification, sometimes called the Owner’s Project Requirements (OPR), upon which the contract is based.

• Licensing Issues
The practice of professional engineering is heavily regulated with established requirements for the practice. The majority of contractors do not meet all of the requirements and therefore are not licensed as design professionals. For this reason, these services are often subcontracted to a design firm. In many states even this is illegal; a contractor is not able to hold out as performing design services for a design-build project unless they are a licensed design professional. Each state holds different regulations, but this causes legal difficulties in the design-build process.(1)

• Insurance Issues
Typically, they will have insurance for errors and omissions which excludes construction services, and contractors often have liability policies which exclude design services. Design professional policies often have high deductibles while liability policies for contractors have little to no deductible. Since each of the insurance types impact the design-build process differently, it can be very expensive to insure this project delivery method.(1)

• The Designer/ Builder Relationship
Since the design builder may be a single person or a contractor/ designer duo, questions may arise regarding the relationship of the two. The two may form a joint venture, a limited liability partnership, or choose to use another organizational form. The homeowner must understand all legal ramifications of contracting with each of these groups(2)

• The Standard of Care
In a design-build project,the homeowner will typically hold the design-builder to higher standards. An engineer does not ordinarily guarantee a successful outcome for the services they provide, but a contractor is expected to deliver a successful final project.(1) Since a design-builder holds the position of contractor, they are typically held to the stricter standards typical for a contractor for all parts of the project, as all services are addressed in a single contract. Although design-builders may often be held to higher standards, this does not require the design-builder to change their standard of care.(1) This can often lead to homeowners becoming dissatisfied with the standards held by the design-builder working on their home.

• Right to a Change Order
In the traditional project delivery method, the contractor is entitled to a change order if any of the following occur:
The owner changes the scope, interferes or disrupts the project, or impacts the project in any manner.(1)
The conditions of the project change due to unknown obstacles.(1)
Problems in the design are encountered(1)
For the design-build method, all of the above may entitle the design-builder to a change order except for problems in the design.(1) Due to the fact that the design-builder acts as contractor, they are held responsible for both the design and build aspect of the project.

• Ensuring Performance
Typically, a contractor only held responsible for the individual services they provide, and not the success of the project in its entirety.(1) In design-build projects, the design-builder is responsible for the success of the overall project since they are held accountable for the majority of the individual services. For this reason, a performance warranty should be drafted to guarantee the quality and performance of the project for a period of time.(1) This holds the design-builder accountable for the project as a whole.

Sources:

Friedlander, Mark C. “Seven Legal Issues Unique to Design-Build.” Schiff Hardin. N.p., 5 June 2015. Web. 6 Jan. 2017.

McGreevy, Susan Linden, A. Elizabeth Patrick, Jessica D. McKinney, and Norman M. Arnell. “Perplexing Issues in Design-Build Projects.” Probate & Property. N.p., Nov. 2005. Web. 6 Jan. 2017.

The critical role of construction in property management

Written by Landlord Property Management Magazine on . Posted in Blog

By Ruben Walker | CAM Construction

Construction is more important than you think

If you own a commercial building or complex, you are either managing it yourself or have a property manager. So you know there are many responsibilities and tasks associated with managing your property. But you may have never thought about the role of construction in property management. This post takes a look and gets you up to speed on what you need to know about this important aspect of the job.

Definition of property management

According to Wikipedia, it is:

the operation, control, and oversight of real estate as used in its most broad terms. Management indicates a need to be cared for, monitored and be held accountable for its useful life and condition.

Property management involves the processes, systems and manpower required to manage the life cycle of all acquired property as defined above including acquisition, control, accountability, responsibility, maintenance, utilization, and disposition.”

How does construction fit into property management?

Construction has several roles to play.

Repairs

Repairs are mostly self-evident. They involve fixing things that are broken through misuse. A window broken by a baseball is a good example. Simple repairs may be carried out by an onsite employee. But more extensive ones may be handled by a third-party. Say if someone drives a car through your front entrance.

Maintenance

Many times an onsite employee will provide maintenance. But it can be more efficient and less costly to contract it out in other circumstances.

Routine maintenance involves the day to day upkeep of your property to keep it functional. Replacing loose fasteners on railings, fencing, steps, or deck planks are examples. Recaulking older windows is another.

Preventive maintenance is a proactive service to avoid unnecessary repairs. Regular inspections and service prolong the useful life of your assets. It is also an important part of maintaining the safety of your property.

Capital Improvements

Capital improvements are a different thing altogether. They are almost always carried out by a third-party. According to Investopedia they are:

“the addition of a permanent structural improvement or the restoration of some aspect of a property that will either enhance the property’s overall value or increases its useful life. Although the scale of the capital improvement can vary, capital improvements can be made by both individual homeowners and large-scale property owners.”

They also have very different tax implications.

The components of your property eventually wear out and have to be replaced. Replacement is necessary even if they have been properly maintained. Technology also changes and requires upgrading or installation of new systems and components. New regulations from government also require additions to or adaptations of your property and its constituent parts. You might even have to carry out upgrades just to stay competitive.

Replacing old windows with new energy-conserving ones is an example of a capital improvement.

Experience counts

You know that you can’t be an expert in every area of responsibility that is involved with property management. That’s why it is important to have partners you can trust and that have the experience you need for third-party services.

When it comes to construction in property management, a financially-sound contractor with experience in capital improvements is a smart option. This role is more complicated and challenging than repairs or maintenance. It also requires outstanding project management and communication skills from your partner.

You need one who can work hand-in-glove with you, your architect, designer, and local regulatory officials. You want a teammate that can help you implement your management plan and advise you on it.

Conclusion

As you can see the role of construction in property management is vital to the success and profitability of your property.

The key is having the right general contractor to partner with for this crucial aspect of the job. It is important to have someone who can understand you, your business or property, and its mission and culture. You need someone you can count on to provide quality, safety, and avoidance of future problems.

5 Reasons to Hire a Real Estate Professional When Buying or Selling!

Written by Landlord Property Management Magazine on . Posted in Blog

Shared content from Keeping Current Matters

Whether you are buying or selling a home it can be quite an adventurous journey, which is why you need an experienced real estate professional to guide you on the path to your ultimate goal. In this world of instant gratification and internet searches, many sellers think that they can For Sale by Owner or FSBO.

The 5 reasons you NEED a real estate professional in your corner haven’t changed, but have rather been strengthened by the projections of higher mortgage interest rates & home prices as the market continues to pick up steam.

1. What do you do with all this paperwork?

Each state has different regulations regarding the contracts required for a successful sale, and these regulations are constantly changing. A true real estate professional is an expert in his or her market and can guide you through the stacks of paperworknecessary to make your dream a reality.

2. Ok, so you found your dream house, now what?

There are over 180 possible steps that need to take place during every successful real estate transaction. Don’t you want someone who has been there before, someone who knows what these actions are, to make sure that you achieve your dream?

3. Are you a good negotiator?

So maybe you’re not convinced that you need an agent to sell your home. After looking at the list of parties that you will need to be prepared to negotiate with, you’ll soon realize the value in selecting a real estate professional. From the buyer (who wants the best deal possible), to the home inspection companies, to the appraiser, there are at least 11 different people who you will need to be knowledgeable of, and answer to, during the process.

4. What is the home you’re buying/selling really worth?

It is important for your home to be priced correctly from the start to attract the right buyers and shorten the amount of time that it’s on the market. You need someone who is not emotionally connected to your home to give you the truth as to your home’s value. According to the National Association of REALTORS, “the typical FSBO home sold for $185,000 compared to $245,000 among agent-assisted home sales.”

Get the most out of your transaction by hiring a professional.

5. Do you know what’s really going on in the market?

There is so much information out there on the news and the internet about home sales, prices, and mortgage rates; how do you know what’s going on specifically in your area? Who do you turn to in order to competitively, and correctly, price your home at the beginning of the selling process? How do you know what to offer on your dream home without paying too much, or offending the seller with a lowball offer?

Dave Ramsey, the financial guru, advises:

“When getting help with money, whether it’s insurance, real estate or investments, you should always look for someone with the heart of a teacher, not the heart of a salesman.”

Hiring an agent who has his or her finger on the pulse of the market will make your buying or selling experience an educated one. You need someone who is going to tell you the truth, not just what they think you want to hear.

Bottom Line

You wouldn’t replace the engine in your car without a trusted mechanic. Why would you make one of the most important financial decisions of your life without hiring a real estate professional?

About The KCM Crew

We at The KCM Crew believe every family should feel confident when buying & selling a home. KCM helps real estate professionals reach these families & enables the agent to simply & effectively explain a complex housing market.

What’s so Great About a Real-Estate Fund?

Written by Landlord Property Management Magazine on . Posted in Blog

By Kathy Fettke | RealWealthNetwork.com

You had a tough time getting to sleep. Then, the phone rings. You think it’s the doorbell as you stumble out of bed, in your dreams, and suddenly realize your cell phone is doing it’s ringtone vibrating dance on the nightstand.

“Hello? … The heater. … Right now? … Your kids are crying? … Let me call you back in five.”

Okay, that’s one possible scenario in the life of a landlord, if you manage your own properties. Or, you could have a property manager. In that case, the phone call would come the next day telling you of a difficult night with tenants, and requesting permission to spend a certain amount of money to remedy the situation. 

Option number two is a whole lot easier than option number one. But there’s an option number three that’s even easier. In this case, you would invest in a real estate fund created by a group of investors who pool their money to buy multiple rental properties. 

It’s like a mutual fund only it’s tied to hard assets instead of the whim of Wall Street investors. The fund itself is professionally managed along with the properties. You get returns and tax benefits on your investment but you don’t have any of the typical landlord responsibilities.

Direct Ownership vs. Real Estate Fund

There are big benefits to any kind of real estate ownership. When you have direct ownership of a rental property, you have complete control of how that rental is used and the flexibility to make changes. You also have big tax benefits, and you get all the profit.

A real estate fund can provide other benefits that may be better suited for someone who is too busy to manage properties or even a property manager. It’s also great for people who are new to real estate and don’t want to take the time to learn about the nitty gritty details.

When you put your money into a real estate fund, the first thing you are getting is “diversification”. You are pooling your money with other investors to buy multiple properties and getting the diversity without spending the time or money it takes to do that yourself. The fund may have 150 properties of different assets classes in different locations. That gives the fund strength if some of those properties, or markets, flounder.

With a fund, you don’t have to qualify individually for financing. That’s a really important part of the deal. Positive leverage is one reason we are in this business. That happens when you borrow money to decrease the amount of the initial investment and bring in higher returns than the cost of the loan. So if you are tapped out on financing, have bad credit, or don’t want to go through the hassle of getting a loan, a fund will take care of that for you.

Another big benefit of owning income-producing real estate is the tax savings. Most funds are set up as a pass through entity such as an LLC so any of the tax benefits you get from “direct ownership” are also available for fund investors. And, that structure is professionally managed so you don’t have to deal with a lot of paperwork or bookkeeping. You will get periodic statements that are often sent quarterly, along with your paycheck.

The icing on the cake — fund investors will typically get a “preferred rate of return”. That means that investors get paid first from the profit pool. Fund managers get paid after that. So whatever percentage you agree on as your rate of return, you will get that money first. This is a great benefit. It puts the investor “first”.

Other advantages of a fund include the buying power of a big team. The people putting the properties together for the fund will having relationships with industry insiders. They will have expertise at recognizing great deals quickly and the ability to buy those properties before they disappear. And, they will be able to negotiate lower prices if they are buying in volume.

The Role of a Fund Investor

First of all, any tips offered in this article are not to be construed as advice. The first rule of thumb for any investment is to speak with your accountant and get your advice there. This article only attempts to help explain the idea of a real estate fund so you are better informed to find one that works for you.

Preliminary research and follow-up are always important for any great investment. Here’s a checklist:

1 – Research fund managers & their investment history/track record
2 – Understand the fund’s return structure, timeline & exit strategy
3 – Read the offering documents & run it by your CPA and attorney
4 – Don’t be afraid to ask lots of questions
5 – Find out how and when you will receive updates & distribution statements

The background and experience of the managers is the most important factor. It’s better to turn down a great opportunity with inexperienced managers, than become a part of their learning curve. Experienced managers know how to choose the right investments and navigate through challenges that are certain to pop up along the way.

Understanding the timeline or the “life of the fund” is also very important, including when you are allowed to exit the fund. If the fund requires a 5-year investment obligation, you should know that ahead of time, and what it requires to remove your money from the fund when that timeframe expires.

Beware of a fund with no “end date”. There’s more of a chance the fund could turn into a Ponzi scheme if it’s open-ended. A closed fund, with a specific timeframe, is usually safer.

Accredited Investors Need Only Apply

Most funds require that investors are “accredited”, meaning that you must earn a certain amount of money or possess a certain “net worth”. To be accredited, you  must have an income of $200,000 a year for two straight years, or $300,000 if you are a couple. Or, you must have a net worth of one million dollars, excluding the equity in your primary residence.

You’ll see lots of buy & hold rental funds on crowdfunding sites these days. In most cases, you must be an accredited investor to participate in those. However, if a private company only reaches out to people with whom they have a prior existing relationship, 35 non-accredited or “sophisticated investors” may participate.

According to Investopedia: “A sophisticated investor is a type of investor who is deemed to have sufficient investing experience and knowledge to weigh the risks and merits of an investment opportunity.”  Sophisticated investors (or accredited, for that matter) should never invest more than 10% of their net worth into any one fund or investment. Diversification is key.

A prior existing relationship requires “three touches” with the organization or three different ways that you’ve had contact with that company. It’s not well-defined, and is basically up to the fund managers to determine if that criteria has been met, but it could mean a combination of phone conversations, in-person meetings, email correspondence, or event attendance.

To find out more about buy & hold rental funds, private lending, and direct investment in cash-flowing turnkey rentals, join our network at www.RealWealthNetwork.com. It’s free and will give you access to quality investor education from real estate attorneys, CPA’s, property managers, insurance agents, and much more. 

10 Habits to Adopt if You Want to Become a Real Estate Investing Legend

Written by Landlord Property Management Magazine on . Posted in Blog

by | BiggerPockets.com

When people start talking about greatness, there’s always something a little surreal about it. Greatness is for athletes and activists and the type of people that others make documentaries about. Greatness is a characteristic that’s sometimes difficult to see applied to yourself (if you’re the humble type) in that larger-than-life kind of way.

You see these big names, these legends in your field—role models you look up to and aspire to be—but do you truly believe you can be like them someday? Can you be as influential, as inspirational, as aspirational?

We have role models and mentors in real estate investment. That’s just how it is. To be clear, I am not talking about the social media hypers who post 17 memes a day about winning, being a winner, being a ninja legend, greatest of all time with bikinis, boats, planes, and trains! Those are neither role models nor mentors nor legends.

But here’s the thing a lot of us have trouble believing: You have the potential to have influence, to be a mentor. Will you have legions of followers reading your blog and hanging on every word of your Twitter feed?

Probably not. And if you do, that kind of presence takes years to build and comes with responsibility to not let it go to your head.

But what you can have is respect—and a greatness that comes with wisdom and a stellar reputation.

10 Keys to Building a Legendary Reputation in Real Estate Investment

1. Be kind.

There’s a quote by Maya Angelou that just seems to ring more true as the years go by:

“I’ve learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel.”

One of the first things we learn as kids is to play nice—to share. But being kind is more than just playing nice. It has more to do with genuinely caring about other people. It’s investing in them! As real estate investors, our business is deeply people-based. How we treat the people around us is paramount to our success. In this business, trust us: Even when you don’t want to take the high road, even when you don’t want to let go, even when you don’t want to be kind, do all of those things.

Related: 10 Entrepreneurs Share Their Most Memorable Mentor-Taught Lessons

It’s not a big playing field, and no one wants to play with the guy who looks like the jerk, even if that guy was completely justified in the action that made him look like a jerk. Being kind always trumps being a jerk or burning a bridge. Even if you have to part ways, you can do it amicably.

real-estate-negotiation

2. Master your niche.

Another saying? The jack of all trades is the master of none. Be a master. Hone in on your niche and completely master it. Be the undisputed champion. Be the person who talks about your area of real estate investment and causes everyone to stop and listen.

It’ll take time to get that experience under your belt—but that kind of mastery is so worth it, not just for your bank account, but for the wealth of knowledge that you can pass on. Stay humble and remember that it take time. Nothing is worse than someone who wants to tout their achievements after completing two flips. Hold up and spend a little more time figuring out your niche.

3. Stay humble.

The best mentors know what they know and admit what they don’t. Stay humble. There will always be things that you still don’t know! Other investors will know more than you do in other areas. Lean into their wisdom. Listen. Pay your dues while you’re still learning—and even when you’ve spent 20 or 30 years in the business.

Humility is one of the best qualities you can have, period—not just for public opinion’s sake, but because it prevents hubris, which prevents us from making stupid mistakes. Stay humble and seek to educate first. Learn to educate in your niche from a point of humility, and your legend will be on its way.

4. Never stop learning.

Hand-in-hand with humility is realizing that you always have more to learn. No matter how long you’ve been in the real estate investment game or how old you are, keep pushing your education forward. Keep learning more because there’s always more to learn.

This is one of the best lessons I have ever been taught by my own mentors. The world changes quickly. Never think you know it all, and never discount others and what you might be able to learn from them. Spend your time with your eyes and ears open, and you just may be amazed at what you learn.

5. Find your own mentors.

One way to keep learning is to sit at the feet of the investors and experts you trust most. Not only do you get to lean on their wisdom, but you can learn from their character, too. They’re your mentors for a reason, remember. If you want to learn from and emulate them, there’s a reason. Surround yourself with people you want to be like. The company you keep matters. You will become the six real estate investing mentors your surround yourself with.

6. Make genuine connections.

Network, network, network! So many investors neglect this key step on their journey. Building up professional connections is key not only to generating leads, but to crafting a network that creates the support and structure your business needs in a way that’s mutually beneficial for everyone. That does not mean pass out business cards and then stand in the corner nor does it mean constantly e-blast and blink-copy every business card you have ever been given. Take time to try and make genuine connections.

hire-a-contractor

Related: What Would Warren Buffett Do? 12 Quotes for Smarter Investing

7. Go above and beyond.

The best real estate investors have something in common: They all go above and beyond. You’ll never find a legendary real estate investor who settles for second rate. They all value excellence—in their services, in their properties, in their deals, in their effort, in everything. Be prepared to make some sacrifices if you want to be that investor. Along those lines, be prepared to give first when you are thinking of going above and beyond. Give before you ask and always give at a level that astounds the person on the other end.

8. Value the details.

Speaking of effort, another way to ensure your status as legend in real estate is to simply pay attention and value the little things—details. Do you make sure to remember things like names? Dates? Thank you notes? Do you follow up? Remember to make good on your word, even if it wasn’t an explicit promise or deal. People pay attention to those little details that add up to a whole lot of integrity. Don’t neglect those little things that don’t necessarily make a direct impact on you business but make a big impression nonetheless.

9. Own your mistakes.

A huge part of your reputation hinges on how you deal with failure and mistakes. Are you the type to pass the buck (and the blame) on to someone else? Do you mope and complain and deny your responsibility in mistakes and mishaps? Or do you own up to it and take charge of the situation? Think about it. The way you deal with the worst of what real estate investing throws at you says a lot to your colleagues.

10. Keep pushing forward.

In the face of difficulties, the best thing you can do for your reputation is to keep going. It won’t be easy, but when you show perseverance and the will to carry on, it says a lot about you. Many of the best investors you will find today, those who may truly be legendary, are the ones who persevered through the toughest real estate climate any of us can remember. They put their heads down and went to work—not after the crisis, but through the crisis. They kept pushing forward; they took hard meetings, made tough phone calls, and continued to believe they would succeed. These are the true legends of real estate, and their example of finding a way should be one you seek to emulate.

ABOUT CHRIS CLOTHIER

In 2005, Chris Clothier (G+) began working with passive real estate investors and has since helped more than 1,100 investors purchase over 3,400 investment properties in Memphis, Dallas and Houston through the Memphis Invest family of companies.

How Sustainability Helps in Enhancing Property Values

Written by Landlord Property Management Magazine on . Posted in Blog

By Michael Lanning | National Real Estate Investor

There was a time when we spoke of green buildings, and it was a conversation focused in large part on the building envelope. Over the years, that conversation has advanced; in a sense it has been turned inside out. Today we speak of high-performance buildings measured by their degree of sustainability and their ability to maintain and enhance the comfort, health and productivity of those occupying the space.

In this ever-advancing field, the ongoing education of property and asset managers is key. As IREM stated in last year’s “Building Performance That Pays,” a report on the Institute’s first Energy Efficiency Survey, “The on-the-ground activities that contribute to building energy efficiency put property managers in an ideal position to impact operational efficiency, in conjunction with their teams and in cooperation with tenants.”

There are multiple goals in the practice of sustainability. As we have said, there is the professional and personal well-being of the tenants. This, in turn, supports long-term occupancy and for commercial buildings in particular, the ability of corporate occupiers to hire and maintain employees. This leads to the ultimate goal of the asset and property manager: value enhancement.

We are seeing the industry respond to that multifaceted outcome. First, more and more practitioners are investigating our educational offerings to enhance their understanding of the issues involved with sustainability. In addition, the number of properties that have achieved their IREM Sustainable Property Certification continues to grow.  (The Institute also hit a major milestone this year. We are proud that IREM has earned the U.S. Environmental Protection Agency’s 2017 ENERGY STAR Partner of the Year Award.)

 

Recently in this space I wrote about the intricate and subtle relationship between asset and property managers. Both disciplines have indeed been early adopters of sustainable best practices. Asset managers are being driven by their portfolio managers and shareholders to drive value for assets in their portfolios. They recognize that to stay competitive and increase the value of the assets, sustainability needs to be near the top of their to-do list.

That cannot be done without the presence of property managers to provide the building analytics that support sustainability initiatives. As Sara Neff, Kilroy Realty’s senior vice president of sustainability, stated in the Building Performance report, “Property managers are a great group to do these analyses. They understand the full benefits of a project because they know their buildings so well.” Indeed, asset managers look to property managers to create a baseline of sustainable property operations and management.

In most cases the asset managers set goals for resources and cost reductions and task the property managers to meet those goals.

Of course, there are many variables in this scenario. Different buildings demand different solutions to the sustainability question. Not every asset needs to perform like a trophy tower in Midtown Manhattan.

Then there are the mindset and capital considerations of ownership. Obviously, if the owner supports the program, it will be easier for the asset manager to implement those processes. If they do not, the on-site manager simply cannot make those upgrades.

Also, smaller shops might find it hard to develop that in-house understanding because of restraints in time, manpower and focus. But sustainability is a critical expertise, no less than the need for HVAC or roofing expertise. If that knowledge does not exist in-house, that’s when you have to look to an outside contractor to provide it. One way or another, today every management concern needs a sustainability expert as part of the team.

 

Whatever the needs of the building, whatever the mindset of ownership, whatever the business restraints, the marching orders remain the same. All property managers today need to be knowledgeable about best practices and the products and services available to them that will best fill their shared goal of value-enhancement.

Michael T. Lanning is 2017 president of IREM. In addition, he serves as senior vice president and city leader for the Cushman & Wakefield, AMO, office in Kansas City, Mo.

Why Rent Controls Will Create Another Monster

Written by Landlord Property Management Magazine on . Posted in Blog

RentReport

Calls for rent controls to be enforced on Auckland’s heaving rental market to stop price gouging will only create another beast, says Auckland’s landlord association.

Auckland Property Investors Association is responding to this week’s news of a rental agency hiking its rents on vacant apartments by 5 per cent a week during a period when pressure from students surged to record levels.

APIA vice president Peter Lewis says despite people thinking rent control provides long-term security for tenants, and tilts the balance of power away from landlords towards the tenants, they also create a Pandora’s Box.

“People who advocate for controls think they make for a fairer market in which households with lower incomes cannot easily be pushed aside by landlords keen to upgrade their property to a higher specification with a commensurate rent increase,” says Mr Lewis.

“In our opinion, controls reduce the supply of lower-end property to the market because there is no money in creating affordable housing if landlords can never raise the rent to market rates.

“Slower supply growth then exacerbates the basic pricing problem. Those landlords who do rent out rent controlled properties tend to do minimal maintenance because, when supply and turnover in the market are limited by rent caps, landlords have little incentive to compete to attract tenants. Rent controls also mean that landlords may also become choosier, and tenants may stay in properties longer than makes sense as when they move to another rental property they may lose the benefit of the less-than-market rent that they have been paying.

“Once people move into a rent-controlled place, they are incentivised to never move out, because it is so cheap. A family may move into a large rent-controlled property. Over the years the kids grow up and leave, the husband dies. But the widow stays on alone in the property that is now far larger than what she needs, she stays on because it is cheap. In doing so she denies that property to another family that actually needs the space. Rent control doesn’t work. It doesn’t help the poor. It helps the middle class. There is some evidence that those living in rent-controlled flats in New York tend to have higher median incomes than those who rent market-rate apartments.”

Mr Lewis says that overseas experience shows stringent enforcement of rent control results in largely adverse outcomes such as undersupply, long waiting lists for tenancies, black market activity, little maintenance of rental properties, urban decay, and sometimes even eventual abandonment of such buildings.

Not convinced, take a look at the video below by Nicole Gelinas from the Manhattan Institute on why price ceilings on rent will only hurt renters. https://www.youtube.com/watch?time_continue=312&v=oJvTTGOHFkU

“In the local context, this proposal ignores the current law that restricts landlords to only charging a rent that is commensurate with other rents for a similar property within the area, and that tenants have the statutory right to appeal to Tenancy Services if they feel that their rents are unreasonably high.”

 

How to Find and Keep Great Tenants

Written by Landlord Property Management Magazine on . Posted in Blog

by Kathy Fettke | RealWealthNetwork.com

HappyTenants

Finding a great tenant begins with having great information — and lots of it. Information is a landlord’s crystal ball. And the best time to get this information is “before” the tenant signs on the dotted line.

One of Real Wealth Network’s preferred property managers calls it the “honeymoon period” because tenants will tell you more about themselves when they want something from you — such as the keys to your property. And it’s not just important for the selection process. This information can be critically important a year or two down the road, if your rental situation suddenly goes south.

This property manager, who prefers to remain anonymous, owns hundreds of properties herself. After years of dealing with both good and terrible tenants, she is a wealth of knowledge about what it takes to select the right tenants. Here is some of her advice:

Tenant Screening Priorities

1. Begin with a criminal background check and a civil background check.
Criminal background checks are good for things like arrests, convictions, and warrants, while civil background checks will let you know if applicants pay their bills on time or have any judgements against them. Civil background checks tell you more about whether they will make “good tenants” and not just “law abiding citizens”. Lexus-Nexus allows you access to a more comprehensive database of information.

2. Credit checks are important for different reasons.
Credit checks are useful, but less important than background checks because they generally won’t tell you much about the tenant’s rental history. It is useful for understanding the applicant’s credit “load” and whether bill collectors are chasing them. Even if you don’t plan to do a credit check, always have prospective tenants sign a release form for obtaining one in case you need it in the future.

Bad credit does not always mean a potential tenant won’t pay their rent. For example, someone who lost their home to foreclosure during the housing crisis may have bad credit today but if the rent is less than their mortgage was, they could become very good tenants.

3. Current landlord information is helpful but you may learn much more from previous landlords.
Current landlords may not tell you if someone has been an excellent tenant because they don’t want to lose them — or they may not tell you if they are horrible tenants because they want to get rid of them. So talking to previous landlords may get you more honest information. Ask for information on two previous landlords.

4. Make sure they are who they say they are.
Request a photo ID and several pay stubs to verify source of income. Ask about next of kin and emergency contacts.

5. Be sure understand Fair Housing rules so you don’t discriminate.
Protected classes include: race, color, sex, religion, national origin, familial status and disability. In Ohio, military personnel are also protected. So know your state rules. Attorneys and paralegals are “not” a protected class. Renting to them could put you at a disadvantage in the event of a future court battle because the landlord would have huge legal fees while the tenants would not need legal advice, or would have access to “free” legal advice. Talk to an attorney on your side to protect yourself in advance with a bullet-proof lease agreement.

The Importance of Good Marketing

It’s also important to be able to attract a large pool of candidates so you can find the right tenant and not feel desperate to just take anyone. To do that, you need quality advertising. Another property management company, Renters Warehouse, offered advice on that:

Place your ad on a website that will display contact information accurately and consistently. Renters Warehouse uses proprietary software to spread the word on hundreds of websites.

Your ad needs to be impressive in order to attract the right tenant. Use high quality or professional photos of both the inside and the outside of the rental property. The photos should be taken with good lighting, and the unit should be spotless. A video walkthrough is also a great idea along with plenty of details.

Renters Warehouse says that most prospective tenants want to know everything about an apartment before they decide to call for a viewing. If you have a pet policy, say so in the ad. If you don’t allow smoking or you need a 2-year lease, spell it out in the ad. You could also include interesting details about the rental or the neighborhood and information about an HOA.

You should also have an eye-catching headline that will showcase a few desirable or unique qualities about your rental. Use well-chosen adjectives that represent your property truthfully. If it’s a recently-renovated older home in a happening neighborhood, the title could read: “Amazing, Upgraded Home Near Shopping & Entertainment.” Or if you expect to attract a younger crowd, cater to them with “happening” words or phrases. Just be sure your description is accurate.

One final point — If you are worried about current tenants making a unit look presentable during the tenant screening process, make sure you require their cooperation with a clause in the lease. For Renters Warehouse, that clause requires cooperation within the final 60 days of the agreement. It also says that most tenants are willing to work with you on those showings, so don’t be afraid to ask. It’s important that prospective tenants get a good impression.

Renting to People Who Plan to Have Roommates

Real Wealth Network has a hot tip for landlords renting to tenants who who plan to have roommates at some point. By requiring the lessee (the person signing the main lease) to inform the landlord of any potential sublessees (people who sublet from the lessee) the landlord can know who’s living in their home at all times.

The landlord then also has a “point person” to talk to about issues.

A clause about rules in regards to renting the property on VRBO or Airbnb would also be useful so you can control if your property might have complete strangers living there for the weekend.

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The Real Wealth Network is a real estate investment club that educates members on how to diversify their real estate portfolio nationwide by sharing information on the best US markets for cash flow and future appreciation. The company also offers referrals to experienced and highly-rated brokers, property managers, and real estate professionals in those markets. You can join for free at www.realwealthnetwork.com.

10 Tips for Successful Real Estate Property Investment

Written by Landlord Property Management Magazine on . Posted in Blog

by: Agustin Diaz & Christine Collura | Keller Williams & Estates

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Just because real estate prices seem to have hit a temporary ceiling in many countries around the world, that doesn’t mean that profits from property investments are hard to come by.

Even during a real estate market slowdown, stagnation or depression profits can be made locally and overseas. This article shows you the top ten tips that real estate investors apply to their property portfolio building strategy to ensure success from their investments.

1) Research the curve – the concept of a property market cycle existing is not myth it’s a fact and is generally accepted to be based on a price-income relationship. Check the recent historical price data for properties in the area of the country you’re considering purchasing in and try to determine the overall feel in the market for prices currently. Are prices rising, are prices falling or have they reached a peak. You need to know where the curve of the property market cycle is at in your preferred investment area.

2) Get ahead of the curve – as a basic rule of thumb, professional real estate property investors seek to buy ahead of the curve. If a market is rising they will try and target up and coming areas, areas that are close to locations that have peaked, areas close to locations experiencing redevelopment or investment. These areas will most likely become ‘the next big thing’ and those who by in before the trend will stand to make the most gains. As a market is stagnating or falling many successful investors target areas that enjoyed the best levels of growth, yields and profits very early on in the previous cycle because these areas will most likely be the first areas to become profitable as the cycle begins turning towards positive once more.

3) Know your market – who are you buying property for? Are you buying to let to young executives, purchasing for renovation to resell to a family market or purchasing jet to let real estate for short term rental to holiday makers? Think about your market before you make a purchase. Know what they look for in a property and ensure that is what you are going to be offering them

4) Think further afield – there are emerging real estate property markets around the world where countries’ economies are going from strength to strength, where a growing tourism sector is pushing up demand or where constitutional legislation has been or is about to be changed to allow for foreign freehold ownership of property for example. Look further afield than your own back yard for your next property investment and diversify that real estate portfolio for maximum success.

5) Purchase price – set yourself a budget that will realistically allow you to purchase what you’re looking for and profit from that purchase either through capital gains or rental yield.

6) Entry costs – research fees, charges and all expenses you will incur when you buy your property – they differ from country to country and sometimes even from state to state. In Turkey for example you should add on an additional 5% of the purchase price for all fees, in Spain you will need to factor in an average of 10% and in Germany fees and charges can be in excess of 20%. Know how much you will have to incur and factor this amount into your budget to avoid any nasty surprises and to ensure your investment can become profitable.

7) Capital growth potential – what factors point to the potential profitability of your real estate property investment? If you’re looking overseas at an emerging market, which economic or social indicators exist to suggest that property prices will increase? If you’re buying to let out are there any indications to suggest that demand for rental accommodation will remain strong, increase or even decline? Think about what you want to achieve from your investment and then research and find out whether your expectations are realistic.

8) Exit costs – if you will incur substantial capital gains taxation liability if you sell your property investment for profit, will that render the investment profitless? In Spain a foreign buyer can incur up to 35% capital gains tax, in Turkey on the other hand property sales are capital gains tax free if the underlying real estate has been owned for four or more years.

9) Profit margins – what levels of capital growth can you realistically gain on your property investment or how much rental income can you generate? Work out these facts and then work backwards towards your initial budget to work out your potential profit margins. At all times you have to keep the bigger picture in mind to ensure that your real estate investment has good potential for profit.

10) Think long term – unless you’re buying property off plan and intending to flip it for resale and profit before completion you should view real estate investment as a long term investment. Real estate is a slow to liquidate asset, cash tied up in property is not simple to free up. Take a long term approach to your property portfolio and give your assets time to increase in value before cashing them in for profit.

Property News Reports – Is the Bubble About to Burst?

Written by Landlord Property Management Magazine on . Posted in Blog

Kathy specializes in teaching people how build multi-million dollar real estate portfolios through creative finance and planning. She is passionate about researching and then sharing the most important information about real estate, market cycles and the economy. Author of the #1 best seller, Retire Rich with Rentals, Kathy is a frequent guest expert on such media as CNN, CNBC, Fox News, NPR and CBS MarketWatch. Learn more about Kathy & the Real Wealth Network at http://www.RealWealthNetwork.com

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