Rent Sense: Value of Rental Ownership

Written by Apartment Management Magazine on . Posted in Blog

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

New Resident Screening Reporting Requirement

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By Romeo Valdez

The passage of the Dodd-Frank Wall Street Reform Act has amended the Fair Credit and Reporting Act which governs access to credit information.  As a result, landlords potentially need to augment the information they provide to applicants on their notice of adverse action (denial) or conditional acceptance (with adjusted terms).

If a landlord takes an action other than acceptance with respect to an applicant that is based in whole or in part on any information contained in a consumer credit report, the landlord shall provide the following additional information to the applicant.

• Numerical Score (the Credit Score – found on the credit report)
• Score Range of the Scoring Model Used (e.g., Transunion (350-900) – Experian (300-900))
• Score Factors (factors affecting the score – found on the credit report)
• Score Date (the request date on the credit report)
• Score Source (the credit bureau that supplied the Credit Score – found on the credit report)

Getting Started in Real Estate Investing

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By William Tingle

“There has never been a better time to start investing in real estate than today!”

This statement is true no matter what year it is.

Real estate has always and will always be one of the most valuable commodities on this planet. No matter how we may change its landscape, develop, improve or alter its appearance, we simply can’t make anymore of it.

In the movie Gone with the Wind, Gerald O’Hara told his daughter Scarlet that, “Land is the only thing that matters, because it is the only thing that lasts.” Of course Gerald O’Hara is a fictional character but his words are very true.

Real estate is one of the greatest wealth builders of all time. It is hard to find any of the names associated with wealth in the history of this country who were not substantial investors in real estate. They knew its worth and you do, too.

San Diego Multi-family Fundamentals are Strong!

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By Jack Nooren Judging by the reports recently published in the local media, San Diego’s real estate market continues to be neck-deep in turmoil.  With home values still adjusting to the new market conditions, and a large numbers of homes still in foreclosure, the county is likely to face a shortage of apartments by August 2012. Approximately 13,000 apartment buildings dot the skyline of San Diego, but currently just less than 130 apartment buildings are up for sale.  Due to the shortage of saleable properties, cap rates have been compressed, fetching owners a higher value.  It is the other extreme though when it comes to commercial sectors such as retail, office and industrial. Here, cap rates and vacancy rates remain at the highest peak while values continue to decline. The number of transactions in the multi-family sector have not been considerable in recent months, but the reason was certainly not due to sizeable decline in values.  Since the first quarter of 2008 to that of 2011, apartment value has declined by approximately 4%. In addition, the inventory of apartment properties for sale is less than 1%. However, the market scenario looks promising in San Diego, today. The air of despair seems to have cleared and the market looks positive. Thanks to rents that continue to improve occupancy at record highs coupled with interest rates ranging from 4.5% to 5.0%, the market is definitely gaining momentum and is poised for rapid recovery. San Diego is confined by three natural boundaries − the border of Mexico, the Pacific Ocean and Camp Pendleton – and the development opportunities are quite minimal.  Fortunately, San Diego did not witness a steep decline in values of multi-family units and this is mainly because the county was not subjected to over-construction of buildings as seen in the real estate markets of Phoenix, Arizona and Las Vegas , Nevada.  In the multi-family housing segment, more permits have been approved in the first quarter of 2011 than in the whole of 2010.  In addition, 649 multi-family units have been approved and permitted in San Diego this year. However, only 10 of the units issued were permitted in May 2011.  In fact, it is the lowest monthly total since October 2009. Several developers are still sitting on the fence, quite uncertain of the right time to commence construction.  Once recovery sets in, more and more renters will opt for home ownership and this might cause some decline in occupancy.  Simultaneously, interest rates will begin to increase, demanding additional revenues to cover these costs and drive up the cap rates. This could potentially lead to a decline in property value, but a counter-balance will be achieved when consumer confidence is restored and investors compete for limited supply. Overall, the market fundamentals will remain strong in San Diego!  Multi-family housing has always proved itself to be the safest strategy at the time of a recession or economical down-turn. As San Diego gears up for multi-family units, nothing is bound to go wrong! NAI San Diego is a locally owned and independently operated, full service commercial real estate brokerage and property management firm.  NAI San Diego is a proud member of NAI Global, the world’s leading managed network of commercial real estate firms. NAI Global is one of the world’s leading providers of commercial real estate services. NAI manages a network with 5,000 professionals and 350 offices in 55 countries worldwide. We bring together people and resources wherever needed to deliver outstanding results for our clients, and complete over $45 billion in annual transaction volume and 300 million square feet of property management, we bring together people and resources to deliver results for our clients wherever needed. Our clients come to us for our deep local knowledge. They build their businesses on the power of our global managed network.  

When Should You Call A Public Insurance Adjuster

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By Ronald R. Reitz, CPA When and why should a property owner contact a Public Adjuster? You should consider contacting a Pubic Adjuster as soon as you suffer a loss. The insured has certain policy conditions that must be strictly adhered to. These conditions are detailed in the policy and they will vary by the type of policy i.e. commercial versus residential versus manuscript. You may start off at a disadvantage if   you wait until your insurance company has begun the adjusting process and  you may discover you have not met certain policy conditions or missed deadlines. I believe it is the insured’s responsibility to determine the value of their claim and it can be a cumbersome process gathering bids from various contractors while you are reading your insurance policy and trying to understand what it means. Insurance policies are very complex documents and are not very easy to understand, many of them have certain limits that increase or decrease depending on the total amount of your losses – and each coverage area can be different. Perhaps you simply do not have sufficient time to document and determine the full value of your claim. Some people try to handle the adjustment process on their own, and quickly learn there are not enough hours in the day to gather all information required to prove your claim. If you do experience a major disaster, it might be a good idea to immediately talk to a Public Adjuster to get a general overview of what your options might be. Remember, a Public Adjuster works for you, the policy holder, not the insurance company. A good Public Adjuster will help you successfully work through the highly stressful period following a loss. This usually is a difficult time for individuals and businesses, especially for someone who has never experienced a disaster or had to file a claim with their insurance company.  A Public Adjuster can take those major headaches away and let you get back to your home life or running your business. A typical fire insurance policy contains exclusions that must be fully comprehended by the insured. Some policies also contain endorsements which provide additional coverages to the policy. Knowing what the exclusions mean and understanding the additional coverage given to the insured in their endorsements it is necessary to read, re-read and then be sure you completely understand what your policy says. Public Adjusters know the insurance business and are familiar with all procedures so they can work quickly to expedite payments. How to find a good Public Adjuster The best place to find a good public adjuster is through NAPIA (at www.napia.com). NAPIA can provide referrals for every state that licenses Public Adjusters.  A Public Insurance Adjuster is the only type of adjuster qualified to represent the insured on a first party property claim. Currently more than 44 states plus the District of Columbia require an adjuster to hold this licensure in order to represent the insured. A professionally trained Public Insurance Adjuster will act as your advocate and help you to navigate the maze of settling the claim for the full amount due under the applicable policy.  Remember insurance policies contain certain conditions that must be met before you can get paid: valuing the loss, presenting it to the insurer and negotiating a settlement. Because insurance policies are complicated and contain certain conditions, full payment on a loss is not automatic. A Public Adjuster can help determine your coverages and cause of the loss in order to present your claim and evaluate the carrier’s offer or denial. Determining the cause of the loss is a critical step in verifying coverage. What to Watch Out For – The Six Danger Signals After a disaster, fire victims often get besieged with inquires and offers from a plethora of general contractors and Public Adjusters and others offering to assist them. This is normal. Just because you are being solicited does not mean they are doing something wrong. However, you need to be careful and do your due diligence before signing up for their services. “It is not uncommon to meet up with a roving insurance adjuster following a disaster,” said Valerie Brown of RB United, a nonprofit community organization for San Diego area wildfire victims.  “Make sure they are licensed by calling the California Department of Insurance Helpline at 1-800-927-HELP.” Valerie also recommended “You should not start any clean up or repair work until your insurance company inspects your property. Take lots of photos of the damage to your property before any work is done.” Here are a few danger signals 1. If they are not members of NAPIA, (National Association of Public Insurance Adjusters,) or of their state association of public insurance adjusters watch out. Public Adjusters that are members of professional associations are required to adhere to a professional Code of Conduct. 2. They make BIG promises without any guarantees. If a Public Adjuster guarantees you they will recover a certain percentage more than your insurer offers, beware. How can a Public Adjuster guarantee anything unless they have read your policy, determined the value of your claim and seen an offer from your insurer? 3. Their fees are outrageous. Most legitimate Public Insurance Adjusters fees range between 5% to 15% with an average of around 10%. Some Public Adjusters may charge higher fees on smaller claims or when hired midway through the claim process.If a Public Adjuster is hired to pursue the last few dollars of a claim, they will likely seek a larger percentage since they have a significant uphill battle to overcome. 4. If you feel pressured to make a quick decision, run. Legitimate Public Adjusters recognize that the decision to hire someone to represent you in order to get your home and life together is a momentous one. This is not a decision that should be made in haste. This could one of the most expensive decisions you make in your life. Take your time, ask for references and call the references. Perform your own research to see what their backgrounds are. 5. Check their web site and address. If they don’t have anything except a business card, be very wary. If their address is only a PO box, this is a red flag. 6. It is often better to hire someone who is local. Someone who knows the local building codes, construction costs and has access to the resources of the community and how best to leverage them. A locally-based Public Adjuster may also have prior experience working with representatives of the major insurance companies in the area and may be able to cut through a lot of the red tape and bureaucracy in order to make sure you get what is owed to you quicker. How to Make Sure You Hire the Right PA? Once again, make sure they are members of NAPIA and hold professional designations. Take your time and do several in-person interviews and request at least five references for each. It may be difficult and intimidating but you need to actually call the references and find out what their situation was. Have your questions prepared before you call. Are they responsive to your questions and seem genuinely concerned. If you hire a Public Adjuster, do so in writing and understand their fees before signing.” VIDEO LINKS When Should Use a Public Adjuster and When Should You Use an Attorney? What to do after you experience a disaster? Your home burns down, your home gets flooded. Who do you call? By Janis Rasmussen, RB United Outreach Coordinator www.rbunited.com What does a Public Adjuster do? Do you need a Public Adjuster? How to find a good Public Adjuster? By Janis Rasmussen, RB United Outreach Coordinator www.rbunited.com Why do you need a Public Adjuster after Your Home Burns Down? What to Do After Your house Burns Down? In 2007, this fire victim in Poway, California tells the heart-wrenching story of what happened to her and her family, and why it is important to pick a good public insurance adjuster firm like Quality Claims. Why Did a 2007 Fire Victim Pick Quality Claim Management as their Public Adjuster RESOURCES & LINKS Quality Claims Management, San Diego, CA http://www.qualityclaims.com National Association of Public Insurance Adjusters http://www.napia.org Rancho Bernardo United http://www.rbunited.com United PolicyHolders http://www.unitedpolicyholders.org About the author Ron Reitz is president of San Diego-based Quality Claims Management Corp., a nationally licensed public insurance adjuster, providing hazard claim recovery services to investors, mortgage servicers, homeowners and businesses. Earlier, he pioneered the national hazard insurance claims business of GMAC-RFC (now GMAC-ResCap). A CPPA (Certified Professional Public Adjuster), Mr. Reitz is Past President of the California Association of Public Insurance Adjusters as well as an Officer of the National Association of Public Insurance Adjusters  (He will be President in 2012). Contact Quality Claims Management at (619) 450-8601 or www.qualityclaims.com.

HOW TO CHOOSE AN ELECTRICIAN

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By Kim Hopkins When you are looking for an electrician, look for someone whom you can form a long term relationship with. It’s going to save you a lot of time and also save your company money if you can find someone whom you trust and who will become part of your maintenance team. Find Recommended Electricians You can get recommendations for electricians from other apartment managers and also from homeowners. You can also search on-line for electrician Los Angeles or electrician Anaheim, and so on. If you add the word reviews to your search, you can look for companies that have the best reviews. Another approach is to search websites that feature reviews. Reviews appear on many websites including Google Places, Yelp.com, AngiesList.com, and CitySearch.com. You may be familiar with AngiesList.com, a paid service. It’s an excellent source of recommendations for contractors. It asks customers to rate contractors, including electricians, and give specifics about how their job went. When looking at customer reviews, take a look at the big picture. If there are one or two bad reviews among the many good ones, does it seem like it’s just a grumpy customer? Is there a company reply that clears things up or says that it has corrected its employee? Once you have three or so recommended electricians, take a look at their websites. Check the Electrician’s Website
  • Is it presentable and well-maintained?
  • Easy to find what you’re looking for?
  • Friendly, helpful, and not cluttered with hard-sell advertising?
  • How many good testimonials?
If the website checks out, it’s time to interview the electrician. Interview the Electrician When you talk with the electrician, pay attention to how comfortable you are, including your trust level. Ask about:
  • Experience with your type of work, including tenant relations
  • Years in business. Most companies which have stayed in business a long time have managed to keep their customers satisfied. They’ve also gathered a lot of useful experience and competence.
  • Contractor’s License number. California electricians must have a “C10” (Electrical Contractor) license.
  • Liability Insurance and Workers Comp Insurance. It’s desirable that the company carry at least $1 million in liability insurance to protect your building should their work create property damage. Workers Comp provides for medical care for the electricians should they be injured on your job. Again, this protects your building from liability.
  • Guarantees. Some companies offer a lifetime guarantee on their work. This wouldn’t generally include the electrical parts that they install – that’s covered by the manufacturer’s guarantee. However, the electrician should give you at least a several-year guarantee on labor. A guarantee up to the life of your building is best.
  • Better Business Bureau (BBB) rating. Ask for the exact company name that you should look up in the BBB and in which city. Sometimes, the BBB will use a slightly different name, possibly the formal legal name of the company.
  • Pricing
  • How jobs are billed and the electrician’s billing cycle
  • Website address if you don’t already have it
  • Names and contact info for five clients, preferably apartment or other property managers
Take notes on all this, particularly the License Number. If you decide to go ahead, you may wish to check some of what the electrician has said. If you decide not to go ahead, no need to proceed any further with this electrician. But save the notes so that you can remind yourself later of which companies you’ve already ruled out. Look and Listen While you’re gathering this information, listen to what is said but also pay attention to how the electrician acts and makes you feel. If you meet with the electrician, keep your eyes open, too.
  • Do you like the electrician?
  • Do you feel comfortable and not under pressure?
  • Does the electrician inspire your trust?
  • Do the electrician and company employees seem to know what they’re doing?
  • Do they seem to operate legally and behave ethically? Are they acting the way that you would want them to act towards you?
  • Do they return phone calls promptly?
  • Are they timely when meeting you for appointments?
  • Do they listen to your questions and concerns and answer them in a way that is forthcoming and that you can understand?
  • Does the electrician dress neatly and have a vehicle and tools that look well-maintained?
Electricians who are bidding jobs are on their best behavior. If you already notice that an electrician treats you or others in ways that concern you, better to find another with whom you feel more comfortable.   Check It Out
  • If you haven’t already, check customer reviews. The first section of this article gives details.
  • Enter the Contractor’s License Number into the California Contractor’s License Board website. Here’s the page: California Contractor’s License Board. See if there are any “black marks.”
  • Check the company’s rating at the Better Business Bureau. Ratings run from A+ to F based on customer complaints made to the Bureau. As a note, an “A” reflects the same level of customer satisfaction as an “A+.” The “A+” is earned by an “A” contractor becoming a paying member of the Better Business Bureau, which supports the Bureau in its work.
Call References Don’t hesitate to call references. Clients are usually happy to give a good recommendation to help a deserving electrical contractor. You can return the favor later when apartment managers call you. Ask:
  • How did your job go?
  • Was your job done right the first time?
  • If a return visit was needed, was the electrician easy to work with and prompt?
  • Was company pricing competitive?
  • Was the electrician within budget and schedule?
  • Would you be happy to continue to use this electrical company?
Speak with at least three references. Listen carefully for enthusiasm or lack of enthusiasm about the electrician. A competent electrical company will have given you names that they believe are satisfied customers. Clients, past or present, may not feel comfortable saying anything negative. If they express little enthusiasm or say something negative, take this into consideration when making your decision. Don’t Automatically Choose the Low Bid A bid may be too low. How can that be? An electrician may intentionally omit items that the job requires, only to come back later saying that additional work needs to be done. On the other hand, some electricians may unintentionally bid low through inexperience. Either way, the electrician may ask for more money to finish the job or may leave you with an incomplete project. Look at the Whole Picture Price is important, but judge the entire picture an electrician is showing you — character, expertise, the ease of working with him or her, and overall value. A large part of an electrician’s value is that he/she gets the job done right and safely without taking too much of your time and inconveniencing you or your tenants. A very competent electrician can save you money by suggesting more efficient ways to do a job or to save on electricity. When you enjoy a good relationship with your electrician, it can make your life easier and your company more profitable. About the Author Kim Hopkins is founder and CEO of The Electric Connection, an electrical contracting company. His company provides electrical installations and repairs for apartment managers and other investment property managers in Los Angeles County. The Electric Connection is a 25-person company that has served Los Angeles since 1979. Kim is happy to answer any electrical questions that you may have. He can be reached at (818) 446-0888 or through his website The Electric Connection.

It’s not snake oil, It’s amazing!

Written by Jordan on . Posted in Blog

By Foothill Painting There are a few reasons you might not have heard of roof coating until now, and it isn’t because the snake oil salesman hasn’t been in your office. Roof coating has been around more than two decades, but just now is catching the eye of the public thanks to companies like A Amazing Roof Coating, a subsidiary of Foothill Painting Co. Inc. in Tujunga, Ca. “We’ve been in business 60 years, and this amazing process is a game changer for property owners,” said Donald Freed of Foothill Painting and Coating. “Customers want to be environmentally conscious these days, but that sometimes means cutting into the bottom line. We all want to do our part, and with roof coating you can have the best of both worlds; a more environmentally friendly roofing system at half the cost of a new roof.” If you’ve met with your roofer already and they haven’t told you about this amazing alternative to a complete tear off they are doing you a great disservice and costing you money. Sometimes it is inexperience, or maybe they are just set in the old ways, but regardless having all the information to make an informed decision is key for any project as serious as re-roofing. Below are just a few ways that roof coating can benefit you, your wallet and the planet. The best part is you don’t already need a roofing problem to benefit from coating. Easily avoid tenant problems and personal loss by coating a roof before it leaks, and never re-roof again. Faster, Cleaner, More Durable Then Conventional Re-Roofing. Roof prep and repair is completed quickly and easily by Foothill Painting’s licensed and insured technicians at a fraction of the time spent tearing off your old roof. Most roofs are only in minor need of repair, but the old system of replacement doesn’t allow for target repair without weakening the entire system. Tear-offs are pain to you and your tenants in more ways than one. Traditional re-roofing exposes you, your tenants, and every item of the structure to the outside elements; roof coating saves you that hassle. It is no secret that scalding hot, sticky, stinky tar is a headache that keeps going and going. With roof coating you can reduce the odor to that of a freshly painted room. Tear-offs leave a huge mess, and haphazardly tossed shingles and nails can cause property damage to your windows, siding, gutters, not to mention you and your tenant’s car tires. With roof coating there are no giant dumpster fleets strewn around taking up valuable parking, only scaffolding and tarps commonly used with commercial painting. Cost Effective. Price is always an issue in today’s economy and the consumers today are more cost conscious then ever before. With savings in mind, without sacrificing durability, roof coating is the way of the future. A typical roof coating will cost 50% less than an antiquated traditional tear off job. At half the cost, roof coating is a cut above, but when you add in the advantage of the income property tax loophole for repairs/coating that allows you to deduct the entire cost the same year, it is a no brainer. Don’t wait years to amortize off the cost of a re-roof when you can cash in on the savings now and in the future with coating. With this perpetual roofing system you never have to re-roof again. Durability, Longevity, And Windproof. When undergoing any roofing project, knowing that your money is spent in the best manor is almost as important as doing the job in the first place. No one wants to throw away money by having to do the same work repeatedly. Albert Einstein defined insanity as doing the same thing over and over and expecting a different result. The average home needs to be re-roofed up to five times during its lifecycle, wouldn’t it be insane not to consider an alternative that eliminates the need for those additional costs? Think about it, we don’t replace our stucco and siding 5 times, we don’t throw away perfectly good windows and trim 5 times, we coat them and protect them from the elements. “We coated our roof 6 years ago at our Tujunga office, and it isn’t even starting to show any signs of weakness,” explained Freed. “We abuse our roof with storage and foot traffic in ways that the normal consumer would never even dream of and in ways a granulated asphalt surface could never handle. After years of us punishment, it is in the same condition that it was the day we coated it, and leak free.” The continuous membrane system available when coating your roof seals in savings, and seals out the elements. Wind is a natural enemy of your roof, but fear not as the continuous membrane insures Mother Nature and the big bad wolf are kept at bay. Remember a nail through system has thousands of points to leak, with our continuous membrane we have none, so wind and water damage can be a thing of the past. Environmentally Friendly. Green is certainly a buzzword and thrown around everywhere you look. Green is also the color of money and many times you must sacrifice one for the other. With the low cost of a roof coating, you no longer are forced to choose between the two. Landfills are stuffed with old roofing materials and transport of landfill waste leads to fuel consumption. Roof coating is a sustainable solution that helps limit environmental impact. Both Kool Seal and Uniflex offer Energy Star rated coatings with up to 90% reflectivity. By reflecting more of the sun’s rays, roof surface temperatures are lowered. This reduces the amount of energy needed to cool the building. If you saved just $200 a year in cooling costs the $$$$ really start to add up over the life of the coating. Most of the electricity used in the United States is generated by burning fossil fuels, reducing the amount of energy needed to cool a building will cut down on air pollutants and save you money at the same time. Sometime we forget that what we see also has an impact on the environment, maybe not in the reduction of our carbon footprint, but more in the sense of pride. If we like what we see we are more likely to maintain it, and that’s why roof coating is available in every color under the rainbow as well. Why not be aesthetically pleasing, good for the planet and safe on your wallet all at the same time? Roof coating is a sustainable solution that helps limit environmental impact, and saves time and money at the same time. It is important to understand that no factory roof will last forever, but A Amazing Roof Coatings can perpetuate your existing roof at an affordable price. Foothill Painting Inc. wants to be your painters, and roof coaters for life. Call now for information about this amazing perpetual roofing system and a free estimate. 818-352-2888 x11 Foothill Painting Company has been proud to provide professional, quality service for the foothills and surrounding communities since 1936 offering a variety of services including residential/commercial, exterior/interior, custom painting and roof coating. Foothill Painting Company is committed to making the experience of painting your home, business, or church a pleasure. Foothill Painting is owned and operated by third generation family craftsmen.  It was started by “Grandpa” Meyer back in 1936.  Then his son, Mark Meyer, continued to work with him, (when he wasn’t barbering) and built a strong client base in and around Glendale, CA.  As the years past, Mark’s sons, Kerry & Kevin also started to help dad and as the family grew, son-in-law Donald Freed joined the business. Today the business is run by Kevin Meyer, Donald Freed and his brother, Joseph Freed.  The office is managed by Don and Joe’s sister, Mari Lynn Bair.  So, as you can see, it is very much a “Family Owned & Operated Business”. Foothill Painting and Coating Inc. has a core group of 15 employees, believing that the more they invest in them, the more they will receive in return. In early 2005, Foothill Painting Company became Foothill Painting Company, Inc., building a strong and lasting company for many generations to come. 818-352-2888 x11 www.foothillpainting.com

Legal Corner

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by Stephen C. Duringer, Esq. Question One of my residents wants to replace his roommate with another.  Seems he has already done this, and is just now getting around to asking for my permission.  I don’t really mind, the last roommate was a bit of a flake.  If I want to allow this, what is the best way?   Answer There are several possibilities, but they depend on the type of rental agreement you currently have, and who the parties are.  If your original tenant is the only party to the lease, then you have two possibilities.  The first would be to leave the rental agreement intact, respond in writing to your tenants ‘request for permission’ to sublet by granting permission to sublet to this specific person, and no others.  This keeps the original rental agreement intact, without altering any terms.  It keeps the tenant in a superior position over his subtenant thereby allowing him a remedy to remove him if the subtenancy doesn’t work out, without bothering you.  The second method would be to enter into a new rental agreement, listing both tenants on the agreement as authorized occupants, making them jointly and severally liable to perform.  This is generally a cleaner method for you, keeps it simple, but it elevates the new roommate to the same position as your original tenant, making them equal.  If the original lease included the former roommate, then ideally, you will request and receive a written notice from the former roommate stating that they have moved out of the unit, and that they are relinquishing their right to the security deposit.  Do not just ‘alter’ the original agreement by just adding the new roommates name.  Any alteration to a contract that is not signed and acknowledged by all parties may void that agreement.       Question Most of my challenges come from my residential tenants. I have a question about handling a commercial property situation.  I am about to enter into a ten year term lease for an industrial unit in Southern California.  The unit has been vacant for quite some time now and I don’t want to lose this deal, seems like good tenants are kind of few and far between lately.  We’ve agreed on just about all of the deal points except a couple.   At the last minute the tenant requested the lease be prepared with a subsidiary of his company rather than the parent company, saying it is for ‘tax reasons.’  Additionally, he wants to make the use provision extremely broad rather than specific allowing him to do just about anything in the premises without having to get my permission.   He knows I need to lease the space, but I’m not sure I want to give in on these points, what are my options? Answer Negotiating commercial leases involves a bit of horse trading.  Often, terms that are very important to your tenant may not be so important to you, and vice versa.  Knowing the pros and cons of each deal point allow you to knowingly accept or reject certain risks when considering certain requests.   Generally, parties meet somewhere in the middle of a request, allowing certain concessions, but protecting the interests of the Lessor.  The tenant’s last minute request to substitute a subsidiary in its stead is an attempt to shift the risk away from the financially stable parent company, and obligate a less financially qualified entity, often times a mere shell, with relatively few assets.  Screen the proposed replacement tenant as you would any proposed tenant to determine if it meets your rental criteria.  Is it an existing concern or a new entity recently formed solely for the purpose of signing this lease?  Is it an independent business concern, generating its own revenue stream?  Does it have assets of its own?  Or is it merely a subsidiary of the parent with no independent means of sustainability.  There are many options to offer that would allow the tenant to satisfy his ‘tax reason’ while still protecting the Lessor’s interests.  You may allow the replacement tenant, but require the parent company to guaranty the lease.  The Guaranty can range from an unconditional full term guaranty to a limited guaranty based either on a certain period of time, or a certain maximum exposure.   An increased security deposit adds protection as well.  Options such as an irrevocable declining letter of credit issued by a reputable financial institution allow parties to salvage deals that might otherwise fail.  Use provisions are important for a number of reasons.  It is important that the tenant’s use does not overburden the facility, or interfere with the neighbors.  Certain unacceptable tenant uses may involve high levels of noise, or the use of corrosive or carcinogenic materials, or other toxic byproducts.  As your facility is an industrial complex, parking is no doubt limited.  It is important that the approved uses do not overburden the limited available parking.  Rather than approving a very broad undefined use, it is better to identify the allowed use, but allow the tenant to request approval for a change of use in the event its operations change in the future.   Question I sold one of my apartment buildings and did a 1031 exchange into a single tenant commercial building.  The tenant has been there several years and has a pretty sweetheart lease.  The base rent is way under market, and he has a couple of options to renew that pretty much keeps him under market for the next ten years.  Even though the lease requires the tenant to maintain the property, it looks like hell, not painted, not maintained, kind of a dump.  By the way, he also seems to like paying his rent late, just got last month’s rent yesterday, three weeks late!  What can I do? Answer A building’s value, to a large extent, will depend on the value of the lease in place.  Certainly the price you paid for the building was influenced by the under market lease and the poor condition of the building.  The two options to renew at less than market rents would have negatively impacted the price you were willing to pay as well.  By allowing the building to fall into disrepair, and by paying the rent three weeks late, your tenant has provided you with an opportunity to substantially increase the value of your investment.  Certain defaults, if uncured, will allow you to take legal steps to terminate the existing lease, and along with terminating the current lease, all options to renew would become ineffective.  Go through the lease terms carefully, identify which terms are being violated by the tenant.  Review the requirements for exercising the tenant’s right to extend.  Most options require that the tenant not be in default when exercising an option.  Further, most leases will cancel a tenant’s right to extend if the tenant has been served with three separate notices of default during the preceding term, even if the defaults were actually cured.  Additionally, if a notice to cure a breach is served upon the tenant, and the tenant fails to cure during the relevant cure period, then the landlord will then have the right to file an unlawful detainer action against the tenant and remove the tenant from possession.  Quite often, after the filing of suit, the parties may wish to negotiate a settlement and allow the tenant to remain in possession.  As part of the negotiated agreement, the landlord will want to redraft the lease agreement in a more favorable light, and either eliminate the options to renew, or change them in such a way that would be acceptable to the landlord.  A tenant, failing to cure a notice of breach, has very little negotiating power when faced with the likelihood of being evicted from the premises.     Question With all of the foreclosures going around, I’ve had several applicants with a foreclosure on their credit record.  Is this something I should be concerned with when qualifying? Answer Proper tenant screening involves looking at past credit history, tenancy history and determining the prospect’s ability to perform under the terms of the proposed lease agreement.  A foreclosure on a prospective tenant’s credit report isn’t necessarily an automatic reason for denial.  Many individuals purchased property over the past eight years that clearly were not financially qualified to maintain and own real property.  If the prospect handled the rest of his credit well, no other delinquencies, no collection accounts, and no evictions, and he has sufficient net income to pay the rent, then he might make a very good long-term tenant, he certainly won’t be buying any time soon.  If on the other hand, he has a pattern of delinquencies, several consumer collection accounts, and non-verifiable income, then keep looking.     The foregoing is presented in a general nature to address typical legal issues that affect owners and managers of rental property.  Specific inquiries regarding a particular situation should be addressed to your attorney.  The Duringer Law Group, PLC is one of the largest and most experienced landlord tenant law firms, specializing in evictions and in the collection of debt, representing landlords throughout California.  The firm may be reached at 714.279.1100 or 800.829.6994 or 877.387.4643.  Visit us at www.DuringerLaw.com for the locations of our six offices, the latest in forms, and for copies of our publications “Eviction and Debt Collection, a Landlord’s Guide,” and “Asset Preservation Strategies.”

Expert Roundtable Series – Best Practices for Lead Management

Written by Jordan on . Posted in Blog

By: Houston Neal

In the latest of our Expert Roundtable Series, we report on best practices for managing leads. We interviewed three experts in the multifamily housing market to learn about the technologies and procedures they use for successful lead management. Among our experts are executives from Gables Residential and Archstone – both are ranked in the Top 50 Apartment Managers report from the National Multifamily Housing Council. Let’s meet our experts:

Donald Davidoff is Group Vice President, Strategic Systems for Archstone, a large privately held multi-family housing developer and operator. His teams manage Archstone’s entire marketing platform, which includes ecommerce, field marketing, creative services and corporate communication. He also pioneered Archstone’s industry-leading business process management solution to automate key forms and processes resulting in a “less paper-full” office.

Lynette Hegeman is Vice President of Marketing for Gables Residential. In this role, Hegeman oversees the development and execution of general marketing, internet marketing, public relations and advertising. With 19 years of experience in marketing, sales management and real estate development with companies such as Intrawest, Hilton Hotels Corporation and Preferred Hotels and Resorts Worldwide, she leverages her experience to further establish Gables as a leader in the multi-family industry.

Tracy Guillen is the owner of Esquire Property Management. She has many years of experience providing Ventura County property management services to real estate investors in Ventura County. Tracy is passionate about the real estate business and takes a personal interest in this field as she actively owns, sells, buys, and manages her own property management portfolio in Ventura, Oxnard, & Camarillo. Her affiliations include: California Broker’s License, California State Bar Association and the California Apartment Association.

Lead management is a critical component for any property management company serious about marketing. In a study from the Aberdeen Group, 90% of companies using automated lead management had average yearly revenue growth of 59%. So without a strategic and organized process for vetting prospective tenants, you may be leaving money at the curb.

What Technology Do You Use to Manage Leads?
Technology is central to any lead management process and infrastructure. Whether it’s a simple contact management system or a custom lead management system, you cannot scale your lead management efforts without technology.

Experts from our roundtable use three general types of applications to track leads. From least to most sophisticated, they are: contact management systems, property management software with customer relationship management (CRM) functionality, and customized lead management software.

In general, small property management companies use less sophisticated technology than their large counterparts. First, small companies don’t need the functionality, automation and scale included in best-of-breed lead management software. Secondly, they don’t have the budget or resources to warrant buying a dedicated lead management system. Instead, most will do happily with a simple contact management program.

Tracy Guillen – “Currently, we just use our website’s contact form to track leads. We use a system called Formstack. It allows us to create a custom, online contact form in HTML, then track inquiries by email and in an online database.”

On the opposite end of the spectrum are large commercial and residential firms that manage thousands of units and field thousands of property inquiries. They often need property management systems with CRM functionality, or  stand alone lead management systems. Both Gables Residential and Archstone have developed proprietary lead management software to track prospects.

Donald Davidoff – “We have a comprehensive set of tools to manage leads. We built our own Lead Management System (LMS) as a standard interface from lead sources into our property management system (PMS). Leads from Internet listing services (ILSs) come directly into our LMS which notifies our community associates when they have a new lead and tracks their response. For inbound phone calls, we use Level One which sends leads into this same LMS and provides independent reporting as well.”

Lynette Hegeman – “Gables Residential utilizes a custom built, proprietary system called Insite to manage all referral sources, prospects and conversion results to lease. In addition we have launched a custom analytics tool that tracks lead data, cost and conversion attribution.”

How Do You Prioritize Leads?
According to a Raintoday.com report, fewer than 25% of new leads are sales-ready. The report is not specific to the property management industry, but this industry isn’t very different to others in that regard:  not all prospective tenants are ready to sign a lease. So what do you do with the “leftovers?”

To begin, you should create a formal lead scoring process. Identifying qualified leads can have a big impact on the productivity and effectiveness of your sales teams. Without prioritization, your sales rep could hound a prospect who is six months away from moving while another “ready-to-move” goes untouched.

An effective lead scoring system will rate a lead based on a number of criteria. Take Gables Residential for example. They consider a prospect’s apartment preferences, budget, location and time-to-move before prioritizing.

Lynette Hegeman – “All leads go through our “funnel” and are prioritized by the level of information received. For instance, two-way communication indicating apartment preference, budget and preferred location would be deemed a priority lead if the community being looked at meets the prospects requirements. Another priority factor would be timing of move. Those with short time frames would be considered a priority. However, in general, we treat all leads with equal care and attention and follow-up on all.”

In some cases, a simpler strategy may be just as effective. Both Esquire Property Management and Archstone take a hot-or-not approach to prioritizing leads.

Tracy Guillen – “We have a simple rating system. They are either hot, or warm and need more nurturing. If the lead is cold, we typically let them go without any further follow up.”

Donald Davidoff – “There’s really not a formal scoring process. We follow up on every lead we get. We identify very quickly if the lead is unqualified (price/quality too high or too low, location doesn’t work, etc.), so those leads fall off very quickly. In fact, many of those are filtered out through Level One, so we don’t even waste time with those. Once we have a qualified lead, we try to time the follow up with their desired move-in so that we don’t push them too quickly – or too slowly – for what they want.”

What is Your Lead Nurturing Process?
After you prioritize leads, what do you do next? This is where a lot of companies drop the ball. Without a good follow-up or lead nurturing process in place, many companies miss out on revenue opportunities. As a general rule, you need to deliver the right message via the right communication channel at the right time. Gables Residential and Archstone use a a multi-touch process for following up with following up with opportunities.

Lynette Hegeman – “The sales team nurtures each lead by following up within a 2 hour window either via phone, or email.  A guest card for each prospect details all conversations and recaps prospects’ needs, wants and price range. Coupled with the tactical approach of three touches, the sales associates work to engage each prospect and guide them through the buying process – ensuring that all objections are overcome.”

Donald Davidoff – “We use a variety of tools including phone follow up, visits and tours and email. We try to understand how each prospect prefers to be communicated with and therefore follow up in the ways and means each prefers.”

How Do You Track Effectiveness of Marketing Campaigns?
At the end of the day, the best lead management still relies on good marketing to bring in prospects. To know that your marketing is working effectively, you need to be able to track its return on investment (ROI).

First, you need to define your marketing metrics. Is cost per lead or cost per lease more important? Or a combination? Archstone uses several:

Donald Davidoff – “We have real-time reports in our PMS, and we do monthly and quarterly reviews using data from our ILSs and Level One to continuously evaluate critical metrics like lead volume, cost per lead and cost per lease.”

It’s also important to track the origin of leads. Did it start with a Google search? A phone call? An advertisement? Companies that track the origin of leads will better understand the value of their marketing campaigns. Fortunately, there are several ways to get this level of detailed information using the right technology.

Lynette Hegeman – “Gables has been using a custom-built analytics tool that tracks each lead by lead source(s), cost and results. Essentially, using a myriad of tracking tools such as Google Analytics, Web Trends and Hit Wise, we created a tool that ties together and scrubs all referral source data.

As a result we follow each piece of traffic through the sales life cycle and gauge the referring source, how many sources did they view in the process (as best we can), how much budget did it take to drive that piece of traffic to the source, and the quality of the lead. We are also geo-targeting to see where traffic comes from in relationship to the proximity of the community.

Another important tactic is our lease matching process that we continue to refine and filter through the analytics program. By understanding who leases and the steps they took in their search process, we can create communication strategies to improve our resident retention programs. The end goal is closing the loop from generating traffic to closing a lease to increased resident retention with lease renewals.”

What’s your lead management process? Do you use technology to automate lead management activities? Do you have formal lead scoring and nurturing procedures? Tell us about your best practices in our comments section.

Please visit www.propertymanagementsoftwareguide.com for more information.

Should You Buy Terrorism Insurance?

Written by Jordan on . Posted in Blog

By: Eric Paulos

Should you buy terrorism insurance or save your money? The answer may depend on how you perceive your building(s) will be affected, at all, in the foreseeable future.

Following the 9-11 attacks on the World Trade Center and Pentagon, damage was estimated at $40 billion dollars. Other than the first attempt to bomb the World Trade Center in 1993, which was limited to the parking garage, and did $300 million damage, 9-11 is the first foreign attack of its kind that has taken place on U.S. soil.  Following the 9-11 attacks, the insurance companies were obliged to pay for the damage to property and had no exclusions for terrorism. Similarly to the way that homeowners company previously had no exclusions for earthquake damage prior to the 1971 Sylmar earthquake, after which homeowners’ policies carried earthquake exclusions thereafter, the commercial insurance industry saw the enormous losses they stood to take and moved to draft terrorism exclusions while they worked with the government to find a solution against this new problem.

Background:

The Terrorism Risk Insurance Act of 2002, approved by Congress and signed into

law by President Bush in November, established a reinsurance program to be administered by the U.S. Treasury Secretary. The program provides reinsurance to reimburse insurers for certain losses arising from terrorist acts. A loss has to cause $5 million to be certified as an act of terrorism.

Congress created the program for the following reasons:

The terrorist attacks of September 11th, 2001 resulted in a huge loss of both property and life. It cost insurers an estimated $40 billion according to the Insurance Information Institute (III). This was easily the largest disaster in the history of the insurance industry.

Reinsurers, who are essentially the insurers of the insurance companies, feared that future terrorist attacks could bankrupt them. As a result, many reinsurers began excluding coverage for terrorism losses from their contracts with insurers.

As a consequence, a number of insurers, now lacking reinsurance protection, started to exclude terrorism coverage from policies they sell to businesses and other organizations.

For example, one result of this was that construction projects could not get financing from banks because the owners and developers could not get terrorism insurance. This alone aggravated the slowdown in the nation’s economy.

An Explanation of the Terrorism Risk Insurance Act:

The Terrorism Risk Insurance Act legislation provided that private insurers and the federal government would share the risk of any future losses from terrorism for a three-year period. Commercial policyholders were notified of the existence of the federal backstop, and then offered terrorism coverage, specifying the cost of that coverage. Policyholders obtained the option to accept or decline the coverage, or negotiate other terms. Those provisions applied to new policies written after enactment.

There were several benefits resulting from the new legislation:

This bill brought much needed capacity back to the market at a critical time.

Without this legislation, insurers were looking at an almost incalculable risk. While still large, the potential risk to individual companies could be quantified, which enabled the insurance market to function again.

Reinsurance companies are the companies that insure the insurance companies. The reinsurance industry took the most significant hit from September 11, more than half of the losses. Since they are not currently in a position to assume the same amount of terrorism risk as they were on September 11, that explains why the federal backstop was critical.

Many small- and mid-sized businesses across the country experienced little change. Their premiums went up for other reasons, but the terrorism coverage itself did not add much to their insurance costs. The major problem remains the threat of chemical, biological, nuclear and radiological attacks on high profile structures or businesses with large concentrations of employees.

Terrorism Risk Insurance Extension Act of 2005

The government passed legislation extending the Terrorism Risk Insurance Act until December 31, 2007.  The government has set aside up to $25 Billion in 2006 and $27.5 Billion in 2007 as a backstop for insurers. If you are interested in reading the actual bill, computer users may find a copy of the Act at http://www.ustreas.gov/offices/domestic-finance/financial-institution/terrorism-insurance/pdf/tria_pl-109-144.pdf (or call us and we will email you a copy of the Act).

What Does Terrorism Insurance cover?

Terrorism Insurance covers many lines of insurance including property (buildings, business property possessions and loss of rents and other business income), liability, and workers compensation. The new bill excludes commercial auto, burglary and theft, surety, professional liability (other than directors and officers liability).

Under what circumstances is there coverage?

For the terrorism coverage to be triggered under TRIA for commercial policies, a terrorist attack has to be declared a “certified act” by the Secretary of the Treasury.

On some policies a doctrine know as “fire following” applies. This means that in the event of a terrorist-caused explosion followed by fire, insurers could be liable to pay out losses attributable to the fire (but not the explosion) even if an apartment owner had not purchased terrorism coverage. Insurers are now seeking to limit fire coverage resulting from a terrorist attack, because commercial policyholders that choose to reject TRIA or other terrorism coverage are effectively paying no premium for the protection offered by fire-following coverage. So far, seven states have amended their standard fire policy laws to exclude acts of terrorism.

What is not covered?

There are long-standing restrictions regarding war coverage and nuclear, biological, chemical and radiological (NBCR) events in both personal and commercial insurance policies.

War-risk exclusions reflect the realization that damage from acts of war is fundamentally uninsurable. No formal declaration of war by Congress is required for the war risk exclusion to apply. Nuclear, biological, chemical and radiological attacks are another example of catastrophic events that are fundamentally uninsurable due to the nature of the risk. Under the Terrorism Risk Insurance Act (see below), if some NBCR exclusions are permitted by a state, an insurer does not have to make available the excluded coverage.

For apartment owners, this means that nuclear, biological, chemical, and radiological attacks are excluded although biological coverage can sometimes be bought back from private insurance companies…at a price.

Business Interruption Insurance

Property damage to commercial buildings from a terrorist attack also may include claims for business interruption. Business interruption insurance (sometimes referred to as business income coverage) covers financial losses that occur when a firm is forced to suspend business operations either due to direct damage to its premises or because civil authorities limit access to an area after the attack and those actions prevent entry to the business premises. Coverage depends on the individual policy, but typically begins after a waiting period or “time deductible” of two to three days and lasts for a period of two weeks to several months.

Business interruption losses associated with acts of civil authority (e.g., closure of certain area around the disaster) can only be triggered when there is physical loss or damage arising from a covered peril (e.g., explosion, fire, smoke, etc.) within the area affected by the declaration. The loss/damage need not occur to the insured premises specifically. Reductions in business income associated with fear of traveling to a location, in addition to closure to areas by authorities because of a heightened state of alert, would not be covered by business interruption policies.

Workers compensation and other coverages

Workers compensation — a compulsory line of insurance for all businesses with employees — covers employees injured or killed on the job and therefore automatically includes coverage for acts of terrorism. Workers compensation is also the only line of insurance that does not exclude coverage for acts of war. Coverage for terrorist acts cannot be excluded from workers compensation policies in any state.

There are essentially three types of workers compensation benefits. The first reimburses workers for lost wages while they recover from their injuries. The second covers workers for all medical expenses incurred as a result of the injuries they sustain. The third type of benefit provides payments to the families of workers killed on the job.

Life/health and disability insurance policies may provide coverage for loss of life, injury or sickness to individuals in the event of a terrorist attack.

Should You Buy or Pass on the offer for Terrorism Insurance?

Whatever the decision, most carriers invoke a “do or die” rule that the coverage may only be purchased or rejected on the effective date of coverage. If you think you want to buy coverage, you must do it at the time you renew your policy. If you change your mind, you can not go back to add the coverage later. On the other hand, if you buy the coverage, and then have buyer’s remorse, you are stuck since the companies generally will not cancel the terrorism endorsement.

Since nuclear, biological, chemical and radiological attacks are excluded from coverage, the scope of risk is from explosion, fire, smoke and other debris (but not radioactive fallout). If your concern happens to be radioactive fallout from a dirty bomb explosion, for example, and your apartment building is located on the outskirts of the city, terrorism insurance will not offer you that protection.

Most policies also exclude for domestic acts of terrorism. If another Timothy McVeigh ever wreaked havoc upon another building, it is likely the act would be excluded. Only foreign acts of terrorism are covered by the coverage.

One consequence of the 9-11 attacks were the giant clouds of dust that swept through southern Manhattan’s financial district, containing pollutants such as asbestos and other toxic materials. An explosion nearby an apartment building would cause an evacuation and a business income loss as well as pollution cleanup expenses.

In a post 9-11 world, we live in an age when we can no longer take it for granted that our oceans will protect us. With a porous border and tensions between the west and Middle East at an all-time high, it may just be worth parting with a few dollars to spare yourself the gamble and avail yourself to a good government program.

Eric Paulos is an advocate for apartment owners, licensed California insurance agent, author, speaker, and owner of Eric Paulos Insurance Services, an agency dedicated exclusively to serving apartment owners. He can be contacted toll-free at 800-974-6787, or by fax at 800-959-9603, or by email at epaulos@paulosinsurance.com. Apartment owners can visit www.paulosinsurance.com to download free articles, free special reports and receive free monthly apartment insurance tips and bulletins or call 888-566-1687 to have a free report sent to you (articles and subjects updated periodically).

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