Rental Housing Journal - On-Site (Seattle) - April 2014

Rental Housing Journal On-Site

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Current Resident or

3. The Mortgage Market is about to Get Smaller5. Spring Cleanup has Arrived7. Dear Maintenance Men:8. Become a Daily Learner…Today! – Ernest F. Oriente9. Touch Points: Intentional Customer Interactions10. Shoptalk11. Exit Strategy Pt. II: Repositioning Your Real Estate Assets to Simplify Your Life

14. Market Trends Update15. It’s Tough to Afford to Be a Renter These Days17. When Screening Applicants Remember the Fair Credit Reporting Act24. Three More Ways to Fill those Vacancies25. Rent Checks Stolen from Property Manager’s Lockbox 26. How the Internet of Things Will Change Property Security and Monitoring

By Marc Courtenay

As property managers, we’re all aware of the multitude of issues that frequently arise

with unreliable tenants. Late rental payments, disturbing the peace, ille-gal activity, and a general disregard for the property are all problems that typically arise in the property man-agement industry.

Many times, we’re so focused on dealing with the problems prevalent in the property management indus-try that we overlook the tenants that always pay on time; the tenants that take good care of their property, the tenants that are considerate of their neighbors. How do we make sure that those tenants are happy? That they feel appreciated? That they know that we want them to remain tenants as long as possible?

Chances are those good tenants are feeling unappreciated right now; which means that they will have no reason to stay at your property if a better opportunity opens elsewhere.

It’s so important to remember that a rental agreement is between two separate parties, and just like any of us, our tenants like to know that they’re appreciated.

Market Strengthens; 46,755 Units in the Pipeline

By Tom CainApartment Insights

Seattle - Latest quarterly Apart-ment Insights survey shows rents up 1.6%, vacancies down .25%, and 46,755 units in the new construc-tion pipeline according to Tom Cain of Apartment Insights. The data are from his Seattle firm’s 1st quarter sta-tistics and trends on 50+ unit proper-ties in the King/Snohomish market.

VACANCY: 4.38% The vacancy rate for our nonran-

dom survey of conventional, stabi-lized 50u+ properties in the King/Snohomish market is 4.38%. This is virtually the same rate of six months ago, and an improvement from the 4.63% in the fourth quarter. A year ago it stood at 4.58%.

The overall vacancy rate which includes properties in lease-up and out-of-service increased from 6.15% to 6.24%.

King County has a vacancy rate of 4.38%, the same as the overall rate. Snohomish County is at 4.35%. This is a tad lower than the overall rate, but not low enough to affect it be-cause only about 20% of the proper-ties are in Snohomish County.

Based on vacancy rates, renters are favoring apartments in the most af-fordable submarkets. Burien, SeaTac, Tukwila and Marysville have some of the lowest rents and lowest va-cancy rates, ranging from 1.83% to 2.86%. Other markets under 3% are Mountlake Terrace (2.75%) and the

U. District (2.90%).The weakest areas are both over

6% vacant. The Eastside South sub-market is at 8.93%. We pointed out in our last report that several major corporations had vacated a massive amount of space in the I-90 corridor office market, contributing to apart-ment vacancies in the immediate area. Ballard is the other submarket over 6% vacant. This is not a case of too few jobs, but rather too many new apartment units. The vacancy rate in Ballard is 6.77%.

RENTAL INCENTIVES: $15 (1.1 4%) Rental incentives remain un-

changed at $15 per unit. In the two-county area 25.2% of the proper-

ties are offering incentives, up from 24.0% last quarter.

ABSORPTION: +1,604 Units There were +1,604 units absorbed

this quarter, up from +1,030 units last quarter.

RENTS: $1,233 per Unit $1.47 per Square Foot

Rents climbed $19 to $1,233 per unit and $1.47 per square foot. This represents a 1.56% increase. This is a welcome relief after rents dropped $5 last quarter. Rents increased 6.8% over the past twelve months.

The highest per-unit rents are in downtown Bellevue where they in-creased $40 to $1,846 per unit and

Do You Appreciate

your Tenants?

continued on page 4continued on page 7

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By by Marc Courtenay

As 2014 begins a bureau cre-ated by the Dodd-Frank Wall Street Reform and Consum-

er Protection Act of 2010, The Con-sumer Financial Protection Bureau (CFPB), will set new rules concerning mortgages. Lenders will be required to verify and inspect borrowers’ fi-nancial records. The rules discourage lenders from allowing borrowers to carry total debt payments totaling more than 43 percent of the person’s annual income.

That debt also includes existing debts like credit cards and student loans. Starting January 10th the CFPB will put into force a nation-al standard for issuing mortgages that could help prevent the housing crash of 2008 and 2009. Earlier in 2013 CFPB director Richard Cordray called the new rules “the true essence of ‘responsible lending.”

All kinds of consumer advocates and mortgage professionals are laud-ing the new CFPB requirements. The new rules not only provide more re-sponsibility for lenders, but it also protects them from lawsuits. “Lend-ers are going to be crossing their

t’s and dotting their i’s like never before” said Bob Walters, the chief economist for Quicken Loans.

On the downside, there will be a big number of people who should have been able to qualify for mort-gages that won’t be able to and will be shut out of the home-buying mar-ket. If you add to that the fact that mortgage rates have risen in the past 6 month and are predicted to gradu-ally move up to the mid 5 percent range by the end of 2014, you can see that the mortgage market will be shrinking.

Others have commented that there’s a good chance that limits on the size of some popular mortgages will be lowered during 2014. CFPB director Corday noted that in the years leading up to the 2008 finan-cial crisis, consumers could easily obtain mortgages that they could not afford to repay. In contrast, in subse-quent years banks tightened lending so much that few could qualify for a home loan.

The new rules seek out a middle ground by protecting consumers from bad loans while giving banks the legal assurances they need to in-crease lending, he said in a press con-

ference at the start of 2013. The new rules will limit offers like teaser rates that adjust upwards and large “bal-loon payments” that must be made at the end of the loan period.

They include several exceptions aimed at ensuring a smooth phase-in and protecting access to credit for under served groups. For example, the strict cap on how much debt con-sumers may take on will not apply immediately. Loans that meet sepa-rate federal standards also would be

permitted for the first seven years.Balloon payments would be al-

lowed for certain small lenders that operate in rural or under served communities, because other loans may not be available in those areas. The bureau also proposed amend-ments that would exempt from the rules some loans made by communi-ty banks, credit unions and nonprofit lenders that work with low- and moderate-income consumers.

The Mortgage Market is about to Get Smaller

Continued on page 4



Market Strenthens ...continued from front page

$2.09 per square foot. Downtown Se-attle with its relatively smaller units has the highest per-foot rents. Here rents bumped up $10 to $1,728 per unit and $2.32 per square foot.

As stated above, renters are favor-ing areas with low rents based on oc-cupancy rates. The lowest rents are in SeaTac where they average $885 per unit and $1.13 per square foot. Other areas where rents are under $950 per month are Burien, Des Moines and Tukwila.

All of these submarkets are in South King County.

NEW CONSTRUCTIONThere are currently 14,884 units

under construction, up slightly from 14,139 units last quarter and 12,006 units a year ago. Sixty-three percent of these units are in the city of Seattle; 22% on the Eastside; 11% in Snohom-ish County, and 4% in South King County.

Together with the 2,801 units that have opened this year, the projected total for 2014 is 11,702 units. Com-pare this volume with the 6,015 units that opened in 2013, and you can see that this will be a monster year. We have found that developers' estimat-ed completion dates are oftentimes extended due to unforeseen prob-lems. However, we expect that 2014 will surpass the previous high that occurred in 1989 even though not all

of the 11,702 units will likely be com-pleted.

The 76-unit Collins on Pine which is featured in the photo opened re-cently on Capitol Hill. It was devel-oped by Metropolitan Companies and is managed by Indigo Real Es-tate Services.

There are currently 5,501 units un-der construction with a 2015 comple-tion date. Additionally, 5,183 units are scheduled to begin construction with completion targeted for next year. This would make a total of 10,684 units for 2015. At this juncture we have information on 2,861 units that are either in the ground or sched-uled to begin for a 2016 completion.

In addition there are 5,943 units that are in the design review or lat-er stages. Lastly, rezoning has been granted to developers on sites total-ing 18,373 units.

The grand total for all of the units in various stages of the pipeline is 46,755 units. A year ago it was 31,790 units. We would like to acknowledge the extraordinary work our staff has been doing in tracking all of these units as they move through the con-struction pipeline.

OBSERVATIONS Last quarter rents dropped $5 and

the vacancy rate increased a quarter of a point. This was after the market really took off in the second and third

quarters of 2013. The market has re-gained its footing this quarter by re-couping its vacancy loss and getting a 1.56% rent increase.

We are very pleased that the rental market is performing so well in the face of all the new units opening. Frankly, we didn't think it would be as strong as it is at this point when we were looking ahead not too long ago. We are fortunate that metro Se-attle is outperforming the state and national economies. Other factors contributing to the strength of the rental market are favorable demo-graphic trends, a preference for rent-ing and barriers to entry into home ownership.

Confidence in Seattle's economic strength and potential among inves-tors, lenders and developers is evi-

denced by the swelling of the new construction pipeline. It appears that their enthusiasm will most likely re-main unabated until such time as the rental market softens.

Tom Cain of Apartment Insights Washington is a member of the nonprof-it Central Puget Sound Real Estate Re-

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has been a member of the Committee for over 25 years, and has been researching

apartment market trends in the Seattle area since 1978. His company surveys the five counties in Central and South

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Spring Cleanup has Arrived

Winter is finally over—at least according to the cal-endar! We can surely be

thankful for our mild winter espe-cially when we hear and see what the rest of the country has experienced. Now that spring is here, it is time to consider the yards surrounding our properties and the exteriors of our buildings. Are the bushes out of control? Do tree branches hang over roofs? Are the beds overgrown? It is time to do a drive-by inspection and evaluate the status of your yards.

Stop and consider curb-appeal from the street. Do the building and yard look inviting? While you are at it, recall the mild moist win-ter we have experienced. Moss and mildew have prospered and grown as well. Check out your driveways and sidewalks. Do they look black from moss? Are they slick? Remove the moss by pressure washing. By doing so, you increase the attraction of clean sidewalks, demonstrate that you are a landlord that cares, and eliminate any dangerous mossy sur-faces. If tree roots are lifting sections, make sure to minimize the possibil-ity that tenants and visitors might trip on the joints.

While you are conducting these inspections, check the condition of your roofs and gutters. When was the last time you had the roofs and gutters cleaned? Now that spring rains have begun, make sure the downspouts drain easily. When was the last time your roof was inspect-ed? Is the time approaching when it needs to be replaced? If it’s 3-tab, are the edges beginning to curl? When you clean the gutters, do they have a lot of sand in the bottoms? These are indicators it might be time to replace the roof before big problems show

up inside the building.Washington State’s short legisla-

tive session will be finished by the time you read this. We (the Wash-ington rental housing coalition) had successes and failures. None of the bills we supported made it through although a couple got farther than in previous years. We successfully opposed all but one bill which had to do with sealing juvenile records. This law will make it more challeng-ing to protect our tenant communi-ties if applicants had juvenile prob-lems with the law.

Our April dinner meeting will depart from tradition. We are chang-ing the date from Tuesday April 29 to Friday May 2nd. It will consist of two different topics. Blain Cowley will present a how-to repair work-shop and WAA will review what happened in Olympia this year.

Last month we mentioned our up-coming Landlord Training 101 that is scheduled for Saturday May 31st at Club Green Meadows. We are lining up topics of importance and knowl-edgeable speakers. We are targeting both new members and those that have been around a while. Mark the date on your calendar!

Yes, the time for spring cleanup has arrived. Many of us have ignored the outsides of our units during the winter. Now it’s time to check them out and clean them up. We want our current tenants to feel proud to live there, and we want to be attractive to new tenants. After all, this impacts our finances and our rental commu-nity.

www.clarkcountyrentalassociation.org

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By Jerry L’Ecuyer & Frank Alvarez

Dear Maintenance Men:When the bathroom faucet was new,

turning off the hot or cold water knobs would cut the flow of water immediately. Two years later, upon turning them off, the faucet weeps a bit of water. Is this a sign the knob isn’t working? Can a clogged spout screen be fixed? With all these problems, do I need to buy an entire new fixture?

Paul

Dear Paul:

Most types of faucets are repair-able with standard tools and a re-build kit. Note the brand and style of the faucet and find a correspond-ing repair kit at the local plumbing supply house or home improvement center. Repair kits often come with the specialized tool you may need to repair the faucet. The faucet screen can be cleaned and is housed in a re-movable assemble at the end of the spout. These can be spun off and the screens cleaned and replaced. Keep in mind the cost of repairs may rival the cost of replacement. If the cost of repair is more than fifty percent of the cost of replacement, we recom-

mend the faucet be replaced with new modern fixture.

Dear Maintenance Men:We have a vacancy and are currently

upgrading the units as they became va-cant. We are looking for an inexpensive way to upgrade our rental units. In other words, spiffy them from the normal.

Hans

Dear Hans:A great way to update older and

modern units is to upgrade the cabi-net knobs, interior door knobs and hinges. Typically apartment or builder grade knobs and hinges are

rather utilitarian in nature. They get the job done and that is about it, nothing fancy. That missing certain “je ne sais quoi” in a remodeled unit can be found in the choice of knobs and hinges you install. A wise choice is a lever style knob. They come in many different finishes and colors and they not only look attractive and modern, they are user friendly for any disabled or older residents. The use of solid brass knobs adds a bit of weight to a door making it appear rich and sophisticated. Stainless steel knobs and pulls can make an older unit look more modern.

Check at your local home im-

By Jerry L'Ecuyer & Frank AlvarezDear Maintenance Men:

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Here are just a few ways to show your tenants that they are appreci-ated:

Be sure to take their concerns seri-ously. If your tenant calls to complain about loud music at midnight, or un-authorized vehicles in their parking spot, take prompt action and make sure that you advise them of both the action and the outcome; don’t make them complain more than once about the same issue.

Fulfill the promises that you make. If you promise a tenant a new dish-washer or new carpeting, be sure to fulfill that promise. Don’t make them ask you about it. Just schedule a time and do it.

Respond promptly to any and all maintenance requests. If a tenant is responsible and takes good care of the property, they shouldn’t have to wait three months to have their stove repaired.

Bend the rules – just a little. Should you wave a late fee – due to a mix-up with the post office for a reliable ten-ant that is never late with their rent? While opinions vary, remember that a good tenant is like a good custom-er, and it may be appropriate to bend the rules now and then. That’s not discrimination; that’s good business sense.

Give them a gift. A gift card to a local store at lease renewal time, or

a card on their birthday will make a tenant feel appreciated, and build loyalty in the process.

There are many ways to make a good tenant feel appreciated, with tenant stability and timely rent pay-ments the ultimate payoff. What more could a property manager want?

Appreciate ...continued from front page



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Life’s Good

18

Our economy and your suc-cess in the property manage-ment industry is based on

knowledge. Gone are the days when you could graduate from high school or college and never again pick up a textbook or attend another class. Ready or not, your lifetime of learn-ing has already begun, no matter how reluctant or scared you might be. In addition, sophisticated tech-nology, business acquisitions, new products and significant regional or national competitors will continue to require your full attention. Ready to become a daily learner? Let’s get started!

Staying current with your profes-sion: Begin your learning journey by subscribing and reading the industry publications, E-newsletters, blogs and LinkedIn groups that serve the property management industry, such as your local apartment association magazine, UNITS Magazine, The Journal of Property Management and Multi-Housing News…just to name a few. These are great ways for keep-ing you in touch with local, state, regional and national trends. Next,

consider in-vesting the time and money to u p g r a d e your pro-fess iona l c e r t i f i c a -tions as this says to your peers and c o l l e a g u e s that you are serious about your property management career. In addition, research the one day seminars delivered by Career Track {800-780-8476} or SkillPath {800-873-7545}, as their programs can advance your specific business skills in a short amount of time and with mini-mal investment. Lastly, search the Internet for industry websites such as MultifamilyBiz [ http://www.multifamilybiz.com ] that serve the property management industry and register for their E-mail newsletters, read their industry news or partici-pate in one of their live and dynamic

webcasts, to experience an engaging form of distance

learning.

Tip From The Coach: Start each year

by reserving the property man-

agement semi-nars and

trade show w o r k -

s h o p s you will

be at-tending.

Then, schedule your company meet-ings and training that is planned and budgeted. Now, look at your calen-dar and reserve the time and dates you are going to schedule for the professional and personal learning that will best serve you. More specif-ically, consider budgeting $50-$150 per month for your continued edu-cation. This small investment today will pay large dividends in the near and distant future…The Coach says so!

Using technology:Technology has created many new time saving, cost-efficient ways to enhance our professional and per-sonal lives. But of course, you need to learn how to best maximize your technology tools to receive the high-est return on your learning invest-ment. Let’s start with the basics. Learn and master the software used by your property management com-pany. Learn the shortcuts for creat-ing professional looking correspon-dence, presentations or proposals. Understand the power techniques for using a spreadsheet or preparing your property budgets. Research so-cial media websites and related soft-ware as powerful marketing engines.

Tip From The Coach: Start with what you already know

about technology tools and take it one step further. Not 10 or 100 steps further…just one step at a time. If you push yourself too far or too fast, you might be in a situation where you will not have the resources to succeed. Instead, take one step at a time, master your new skill, then

Become a Daily Learner…Today! by Ernest F. Oriente, The Coach {Article #213…since 1995}

Continued on page 12



Touch Points: Intentional Customer Interactions

By Pam McKennaMultifamily NW President

Do you ever won-der what your cus-

tomer really wants? Do you have a plan for finding out, or does it hap-pen by accident or not at all? The more you engage with customers the clearer things become and the easier it is to determine what you should be doing. So, how often do you engage with the customer and are you inten-tional with your interactions?

Setting up a touch point system will help you create a series of in-tentional interactions with your resi-dents which will help you to better understand their expectations. This

can be accomplished utilizing the outlook calendar and will involve the entire team. Start it off with a move in orientation led by the leasing team using the opportunity to educate your residents on what your com-munity has to offer. Include where to find the nearest trash and recycling areas, how to use all the appliances in the apartment and any other spe-cific information that would start them out on a good note.

The next touch point will be with-in 24 hours of move in. Use this as an opportunity for the maintenance team to get involved. Include a move in gift (ie; picture hangers, plunger, laundry detergent) delivered to the resident. Ask the resident if every-thing in the apartment is working

properly. Be prepared to respond immediately and make repairs right there on the spot.

One week later have the manager call the resident to welcome them to the community, ask how things are going in their new home and if there is anything they need to make their experience better. Confirm they are clear on the rent payment process and have all the information they need to get set up for auto payments. Provide them with information on all the local businesses (ie: dry cleaning, pet services, restaurants, car wash).

One month after move in send your resident a personalized hand written card or emailed video card from the entire team to let them know how much you appreciate them liv-

ing at your community. At the 45 day mark invite them

to a resident event that includes op-portunities to network with other residents and start to build a sense of community. Hold these events once every three months to maintain com-fort levels and to ensure consistency.

Additionally, there are third party companies you can engage to send out customer surveys as an addi-tional touch point. These can be sent right after the move in and after ev-ery maintenance request is complet-ed. The survey allows you to listen to customer feedback but listen careful-ly and respond fast. If you respond to their comments they will continue to give you more feedback because they know you are listening and that you care.

The conventional resident experi-ence typically includes focused at-tention during the sales process but once they are handed their keys they are on their own unless something goes wrong. Then forty five days be-fore the lease ends we slap a note on their door with a rent increase.

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The value of setting up ap-pointments from telephone inquiries has been clearly es-

tablished. Yet, it seems that the num-ber of callers being converted into visitors is not always producing a high percentage of rentals. A recent question submitted by a manager of a large apartment community may shed some light on this subject:

Q: I know it’s important to set ap-pointments from my phone contacts, but does it really matter who ends up giving a tour when the client ar-rives? I manage and lease out of a busy office and we all work together, but sometimes I wonder if we would have a higher closing ratio if each of us helped our own clients. What do you think?

I think there is a lot to be said for the environment of “teamwork” that you have created. Those managers who work side by side with their

leasing staffs, will keep them mo-tivated and excited about renting apartments. However, in working too closely as a team when it comes to leasing, some of the “personal-ized” service can be lost. If a prospec-tive renter is helped by someone else when they arrive for an appointment, it can give them the impression that their initial contact wasn’t genuinely interested in helping them. Also, any “rapport” that was personally created by you, or another member of your staff over the phone, is lost if they have to “start from scratch” with someone else. - Not to mention the inconvenience to the client if they have to repeat their needs and prefer-ences all over again to someone else.

Many times it’s the personality, sales skills and knowledge of the em-ployee on the phone that “sells” the client on making an appointment in the first place. Once a relationship is established in the initial phone con-

tact, the prospective renter is expect-ing to meet with the same person when they arrive at the community. It can be a real let down to learn that the employee they connected with from the phone contact is unavail-able. Worse yet, no one else in the of-fice even knew they were coming in.

For leasing consultants whose primary role is renting apartments, careful planning and scheduling can make it possible to keep most of the appointments they set. For manag-ers and other office staff who end up answering the phone, but who are not available to keep appointments, it might be best to resist answering the phone on the days you are un-available. This will give your leas-ing staff the ultimate opportunity to sell and close the deal. Remember: Working as a team means some play-ers will spend time “on the bench” while other members of the team are out on the field. If you assemble

your team before the day begins, then you can decide which employ-ees are best equipped and available to lease apartments that day. With your strongest players on the front line and everyone “passing the ball” (clients) to them, you will score more rentals every time!

If you have a question or concern that you would like to see addressed next month, please ASK THE SE-CRET SHOPPER by making contact via e-mail. Your questions, com-ments and suggestions are ALWAYS welcome!

ASK THE SECRET SHOPPER

Provided by: SHOPTALK SERVICE EVALUATIONS

Phone: 425-424-8870E-mail: [email protected]

Web site: www.shoptalkservice.comCopyright Shoptalk Service

Evaluations

If you want to want to be in touch with what your residents really want, start by setting up intentional interactions. Don’t wait until it’s too

late. With today’s busy schedules we need to plan ahead and be more pur-poseful to stay in touch. The results will provide an improved customer

experience, a stronger sense of com-munity and reduce resident turnover. In the end this shows your customer they are truly valued.

Touch Points ...continued from page 9



Cliff Hockley, PresidentBluestone & Hockley Real Estate Services

As Baby Boomers age, they realize that things may need to change with how they

handle their real estate investments. First of all, they may be tired of deal-ing with the details that are involved with the day to day operations of real estate investments; secondly, they start having to come to grips with their mortality and may not want their spouse or family to have to deal with those investments. Finally they may be concerned about the tax im-plications involved with selling their assets; inasmuch as the direct sale of a property could cost forty percent or more of the capital return.

Making decisions regarding the future of existing real estate invest-ments is much like selling a business. Typically, most real estate inves-tors spend a lifetime [40 – 50] years building a retirement vehicle, poured blood, sweat and tears into their in-vestments to build a legacy. They are now faced with decisions on how to maintain a sufficient cash flow dur-

ing their lifetime and transitioning their assets either to their spouse, children, grandchildren or charitable organizations.

There are many different direc-tions baby boomers can choose to re-position their real estate investments to prepare for retirement and / or to reduce the time and energy needed to manage them.

These include:

1. Selling their real estate invest-ments

2. Family succession planning

3. Selling to partners

4. Contributing to a charitable orga-nization

5. Repositioning your portfolio

6. Using a 1031 exchange to invest in an UPREIT (Umbrella Partnership Real Estate Investment Trust)

7. Tenant in Common Investments

8. Hiring a property manager

Sale of the real estate investments Typically when investors choose to sell their real estate holdings, they are faced with the following costs,

taxes and possible prepayment pen-alties:

1. Federal Taxes Federal capital gains: 20% Federal Medicare tax: 3.8%

2. State capital gains (depends on state) 9.9% (Oregon) 13.3% ( Cali-fornia) RED FLAG: Depending on the

number of 1031exchanges involved with their holdings, the state’s reve-nue departments (tax collectors) will come after the investor to recapture taxes one may have put off paying in the past closings.

Should you die before the state gets its share, the beneficiaries ba-sis in the properties received from the decedents estate is valued at the properties Fair Market Value at date of death or 6 months later. (The estate has an option regarding the valua-tion date.)

3. Real Estate Transfer Taxes** (state and county) See below for exam-ples: **Washington State collects 1.28% and Clark County collects .5%, equaling a total of 1.78% of the sale of transfer of ownership of real property. **Washington County, Oregon: The current rate

is $1.00 per $1,000.00 of consider-ation. The transfer tax in Washing-ton County is customarily divided equally between the seller and the purchaser. ** Go to this chart to de-code the transfer taxes in Califor-nia. www.chicagotitletransfertax.c om/

4. Local city and county business tax-es Note: (in the City of Portland, Multnomah County, Oregon, the sale of a property could trigger a 2.2% city tax plus a 1.45% county tax, if one does not reinvest the funds via a 1031 exchange.

5. Federal depreciation recapture, which is 25% of the depreciation written down over the life of the ownership of the property. RED FLAG This could be a huge num-ber depending on the number of 1031 exchanges one has closed to get to the final exit sale since with each 1031 the property basis is typ-ically adjusted , though you can avoid those taxes at death. Upon death, property basis is “stepped up” to Fair Market Value at date of death or 6 months later.

Exit Strategy Pt. II: Repositioning Your Real Estate Assets to Simplify Your Life

... continued on page 19



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take another step. For many, hiring a private business trainer or coach, can rapidly accelerate your learning curve around technology. For oth-ers, just reading two or three pages of their software user manual each day, is enough to gain incremental knowledge with technology tools.

Helping your team to learn: In ad-dition to your daily learning, it will be equally important that your prop-erty management team continues to grow and learn at a comfortable pace. Property management compa-nies around the world are finding a direct connection between learning and company performance. In fact, many companies are now measuring both performance goals and learn-ing goals on an individual basis. These learning goals are focused on areas such as: resident satisfaction, increased asset performance, maxi-mizing technology and team-build-ing skills.

Tip From The Coach: When helping your team with their learning skills, ask them to help you answer this question, “Learning __________ will help me __________ so that I can __________.” Asking this question is key, because the people that work for your property manage-ment company will be eager to learn if they have a hand in structuring

their own industry and professional training. Remember, whenever you include your team in the planning of their future, you raise their motiva-tion to succeed and reduce turnover at the same time.

In closing, today’s success comes from yesterday’s learning, while to-morrow’s success comes from what we learn today. Want to hear more about this important topic or ask some additional questions? Send an E-mail to [email protected] and The Coach will E-mail you a free invitation to be on a PowerHour conference call.

Author’s note: Ernest F. Oriente, a business coach/trainer since 1995

[31,800 hours], serving property man-agement industry professional since

1988--the author of SmartMatch Alli-ances™, the founder of PowerHour® [ www.powerhour.com ], the founder of

PowerHour SEO [ www.powerhourseo.com ], the live weekly PowerHour

Leadership Academy [ www.power-hourleadershipacademy.com/pm ] and

Power Insurance & Risk Management Group [ www.pirmg.com ], has a pas-sion for coaching his clients on execu-tive leadership, hiring and motivating

property management SuperStars, traditional and Internet SEO/SEM

Daily Learner.continued from page 8




marketing, competitive sales strategies, and high leverage alliances for property

management teams and their leaders. He provides private and group coaching

for property management companies around North America, executive re-

cruiting, investment banking, national utility bill auditing, national real estate

and apartment building insurance, SEO/SEM web strategies, national

WiFi solutions [ www.powerhour.com/propertymanagement/nationalwifi.html

], powerful tools for hiring property management SuperStars and build-ing dynamic teams, employee policy

manuals [ www.powerhour.com/prop-ertymanagement/employeepolicymanu-

als.html ] and social media strategic solutions [ http://www.powerhour.

com/propertymanagement/socialme-dialeadership.html ]. Ernest worked for

Motorola, Primedia and is certified in the Xerox sales methodologies. Recent interviews and articles have appeared

more than 8000+ times in business and trade publications and in a wide variety

of leading magazines and newspapers, including Smart Money, Inc., Business

2.0, The New York Times, Fast Com-pany, The LA Times, Fortune, Business Week, Self Employed America and The

Financial Times. Since 1995, Ernest has written 225+ articles for the property

management industry and created 400+

property management forms, business and marketing checklists, sales letters

and presentation tools. To subscribe to his free property management newslet-

ter go to: www.powerhour.com. Pow-erHour® is based in Olympic-town…Park City, Utah, at 435-615-8486, by

E-mail [email protected] or visit their website: www.powerhour.com

Daily Learner.continued from page 12Get Smaller ...continued from page 3

You can learn more about the de-tails that the CFPB’s website which is a great source of information on new laws that govern the use of credit and consumer rights. Property man-agers, here’s an idea for you. Why not send a link to this article to your owner-clients and your prospective client list as a “heads-up” for the year ahead.

As I often like to remind us, being a font of information and the latest insights can separate you from your peers, leading to more referrals and a bigger book of business. On sec-ond thought, if you send this article to your owner-clients and your pro-spective client list, maybe it would be more prudent to copy and paste sections and leave off the last 3 para-graphs.

PropertyManager.com a Service of AppFolio



• Executive Director – Jim Wiard • President – Gail Duke – Vice President – Kris Buker • Secretary – Becky Sanders • Treasurer – Brett Stevens • Vice President of Suppliers Council – Barry Savage • Immediate Past President – Jay Olson

18300 Cascade Ave. S., Suite 130Tukwila, WA 98188

(425) 656-9077(425) 656 9087 (fax)

[email protected]

Mike Scott’s company, Dupre+Scott Apartment Advisors, conducts exten-

sive market research for the apart-ment industry. Average rents con-tinue to grow at a favorable pace, but there is a sizable difference between average rents for apartments built since 2000 and apartments built be-fore 2000, by about a 60% margin. Apartment sales prices continue to climb as a result. New construction is still approaching record rates, with nearly 14,000 units forecasted to come to market in 2015.

Average rents continue to rise in the Puget Sound region, but in large part due to the impact of new construction. New construction has been primarily higher end, market rate product in urban areas. These properties are leasing up at rents higher than the average market rent, thereby increasing the average of all property rents. “Beware the skew of the new” said Mike, referring to the

effect new property rents have on the overall average.

On the expense side, Mike cau-tions against two disturbing trends. First, capital expenses to maintain properties in a competitive condition have risen over the years and now average $900 per unit per year. How-ever, investors continue to estimate the old standard of $300 per unit per year, which will result in rate of re-turns which fall short of projections when reality sets in.

Mike also explained that although rents continue to rise, expenses, pri-marily property taxes and utilities, continue to rise at a greater pace than rents. This is an unsustainable phe-nomenon that, if maintained, will turn properties upside down. Keep in mind, the benefit of increased rents is partially diluted by the rate of inflation over time. Collected rents in the past 15 years have increased by 3.7% per year. However, taxes and utilities have increased nearly 6% per

year during this time and total op-erating expenses have risen by 4%. NOI’s will continue to shrink if this trend continues.

Monthly apartment sales volume has seen peaks and valleys in the past 10 years, with peaks in 2006 and 2007 and valleys in 2009 and 2010. The same trends held true for apart-ment price per unit. In 2013 and 2014, apartment sales trends and pricing have increased but to a more moder-ate level, as mortgage rates and cap rates have held in the 4 ½% and 5 ½% range. Interestingly, the percentage of sales at or above listing price has increased substantially the past year compared to previous cycles.

Market vacancy in the Puget Sound region is 3.6%. There are 9,400 units in lease up in the region today. Rents are 7.5% higher than they were a year ago. New construction vol-ume continues to be the hot topic in the Seattle market. Quarterly apart-ment completions will average 3,200

units in 2014 and 2015, compared to a historical average of just 1,100 units per quarter. This influx of new con-struction will certainly have an im-pact upon rent growth, occupancies and concessions in the short term, starting next year.

However, in-migration figures for Washington state and King County are well above average. 60,000 new residents moved to King County in the past year, up 16% from the prior year. Favorable demographics ben-efit our region as the large millen-nial generation moves into rental housing and the “geezer effect” of people turning age 65 continues to rise at unprecedented rates. Both age dynamics support new apartment household formation.

Demand continues to outpace supply. Job growth continues to be steady, allowing for strong absorp-tion numbers. Our region added 49,000 new jobs since the first quar-

continued on page 16

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Follow the Yellow Brick Road... .to EdCon 2014!

Market Trends UpdateWMFHA members were treated to a current market trends presentation by

Mike Scott at a recent quarterly Membership Luncheon



By Marc Courtenay

Housing affordability isn’t looking too promising as 2014 begins. If you listen to

the National Association of Realtors the opportunity to be a homeowner hasn’t been this affordable in a long time.

If you review Figure 2 below you’ll get the impression that Ameri-can housing is now extremely afford-able and the typical household can easily make the monthly mortgage payment on a home. Thanks to his-torically low interest-rates, fixed rate mortgages have become more af-fordable for some American families and many analysts expect that this cheap credit will fuel another hous-ing boom.

Figure 2: US Housing Is Afford-able

Perhaps another home-buying- boom has begun, but from the index above it still looks like the price of housing is above the levels we saw between 2005 through 2008. Yes, there’s been a dip since 212, but an-ecdotally I’m not hearing of a big in-crease in existing housing sales since mortgage rates are climbing.

In fact on Dec.19, 2013 Reuters re-ported that “U.S. home resales fell sharply in November to their lowest level in nearly a year, hurt by a rise in interest rates since the spring and ongoing price increases that have shut some home buyers out of the market. The National Association of Realtors (NAR) said on Thursday [the 19th] that sales of previously owned homes dropped 4.3 percent last month, the third monthly fall in a row, to an annual rate of 4.90 million units.” That was the lowest annual rate since December 2012, and well below the median forecast in a Re-uters poll of a 5.03 million unit pace. “It is a clear loss in momentum for home sales,” NAR economist Law-rence Yun told reporters.

How About The Cost Of Being A Renter?

As Mr. Doubtfire said to Mrs. Doubtfire in the movie by the same name, “Brace yourself Effie!” An online trade journal for folks in the mortgage industry, The National Mortgage Professional had a grim as-sessment titled, “American Renters Facing Tough Affordability Issues”.

“Affordability problems for rent-ers have skyrocketed over the past

decade both in number and the share of renters facing them, according to a new report on rental housing from the Harvard Joint Center for Hous-ing Studies.” “The inability of so many to find housing they can afford dramatically impacts the health and well-being of U.S. renters, as lower-income households cut back on food, healthcare, and savings, just to keep

up.”The Harvard report, “America’s

Rental Housing: Evolving Markets and Needs,” found that half of U.S. renters pay more than 30 percent or more of their income on rent, up an enormous 12 percent from a decade earlier. A large amount of the in-crease was found among renters with

It’s Tough to Afford to Be a Renter These Days




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ter of last year. If job creation and in-migration continue to be strong, the impact all the new construction will have on the existing market will be tempered, and strong supply and de-mand factors will prevail in 2017 and beyond.

To view weekly apartment up-dates from Mr. Scott, go to our web-site at www.wmfha.org. Also, check out www.weareapartments.org for data on the positive impact the apart-ment industry has upon the econ-omy in the Washington and Seattle regions.

For more relevant industry infor-mation, don’t miss our upcoming

trade shows. Maintenance Summit (April 30) is an interactive, hands-on industry event for site maintenance personnel, with classes including ap-pliance repair, electrical repair and water mitigation, as well as a valu-able vendor trade show. The day ends with the National Apartment Association’s Maintenance Mania skills competition, with the winner vying for an all expense paid trip to Denver for the national competition.

Your on-site management teams will want to attend EdCon, an excit-ing and informative education con-ference and exhibition, with national keynote speakers and local subject

matter experts on topics such as leas-ing, leadership and market best prac-tice trends. Supplier members will be on hand to display their products and services, and the event will be highlighted by our popular Think Tank Brainstorming Session, where peer groups will break down daily challenges and everyone will come away with solutions to their most pressing issues. Sign up on our web-site for this must attend event to be held May 20th at the Meydenbauer Center.

On a separate note, in support of a celebration of National Fair Housing Month, WMFHA is promoting the im-

portance of fair housing through an in-teractive Facebook campaign intended to bring greater attention to the need for fair housing awareness and commit-ment. The multifamily housing industry has an obligation to show leadership in supporting and enhancing fair housing practices for all. I urge our members to set an example for the industry by em-bracing the promotion of fair housing practices and training among our mem-ber employees and company leaders.

By Marc Courtenay

Property Managers know how important it is to prevent prob-lems with residents through

careful screening procedures. The old saying, “an ounce of prevention is worth a pound of cure” is as im-portant in today’s society as ever. That’s why experienced property managers don’t cut corners when screening applicants.

Yet there are some legal issues that landlords and all business people face when screening, and it begins at the Federal Government

level with the “Fair Credit Report-ing Act” (FCRA). The latest version of the FCRA is worth reading since it also involves procedures for doing a credit and background check on em-ployees.

The Consumer Financial Protec-tion Act of 2010 (CFPA) is yet anoth-er set of rules and regulations that property management companies should become familiar with. There are a number of ways to get the over-view for the CFPA and this link is an adequate example.

The purpose of this article is to make you aware of these federal

laws, not to explain them in detail. Any kind of background check is a very good idea only if the rules and regulations are followed. Because many of the credit reporting and con-sumer protection laws are complex you’re likely to need help.

There are a number of online re-sources that can be useful to make sure your background check doesn’t violate the laws—and those laws in-clude state and local ones. Yet like all online resources, as the song goes, “you’d better shop around.” Another option is to use a property manage-ment software solution that includes

screening.The take-away from this article is

that most people who own or man-age rental properties need a repu-table screening services company that’s easy to work with, thorough and fast. The ones worthy of your consideration should welcome your questions and have a phone number you can call to ask a live person to give you straight answers.


When Screening Applicants Remember the Fair Credit Reporting Act

Market Trends Update ...continued from page 14



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severe financial burdens (e.g. paying more than half their income on rent). These levels were unimaginable just a decade ago, when the percentage of American renters paying half their income or higher on housing stood at 19 percent and was already an alarm-ing concern.

“Escalating rental affordability problems come at a time when the share of Americans that rent has in-creased from 31 percent in 2004 to 35 percent in 2012. In fact, the 2000s marked the strongest numerical growth in renter households in the last fifty years” the report continued. “As ownership rates fell, housing markets have adjusted dynamically to the increased demand for single-family rentals, with about three mil-lion existing homes switching from owner to rental occupancy from 2007-2011 alone.”

That number has risen in the last two years, and most of those hous-es were rented at local fair-market rent levels. So Property Managers, are you keeping up with the rental affordability circumstances in your area? How fast are your vacancies being filled, and will vacancies start a trend in the other direction?

Be prepared to speak with your owners (clients) and let them know what’s going on both regionally and

nationally. If fewer Americans can afford the current cost of renting a house or an apartment, perhaps we will all experience the need for tem-porary rent reductions? Another pos-sibility to consider; Are your owners and you willing to rent to multiple couples, and are you going to need to advertise your unfilled vacancies for singles to share to help the afford-ability challenge?

Hopefully a rebound in employ-ment and a robust gain in the eco-nomic circumstances of the average American will unfold in the year ahead. In case it doesn’t, prudent Property Managers need a back-up, contingency plan. What is yours, and are you communicating with your clients about it? If you don’t have one, create one. Then plan on sched-uling individual meetings with own-ers or do a client-appreciation semi-nar to let them know your ideas.

Posted by Alexis Hammond in PropertyManager.com a Service of AppFolio

A new poll of Millennials puts travel and self-employment at the top of what they con-

sider the American Dream. Putting these values far higher than genera-

tions before them. More surprising numbers show Millennials identify the dream of homeownership at a far lower rate than Gen X and Baby Boomers. This from the latest Mass-Mutual third biennial study The 2013 State of the American Family.

New Poll of Millennials Gives New Meaning to the American Dream

It's Tough ...continued from page 15

The statements and representations made in advertising and news articles contained in this publication are those of the advertiser and authors and as such do not necessarily reflect the views or opinions of Professional Publishing, Inc. The inclusion of advertising in this publications does not, in any way, com-port an endorsement of or support for the products or services offered. Metro Apartment Manager is produced monthly and is published by Professional Publishing Inc. PO Box 6244 Beaverton, OR 97007. (503) 221-1260 - (800) 398-6751 © 2014 All rights reserved.

Publisher Will Johnson • [email protected]

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6. Prepayment Penalties: Many prop-erties have underlying financing issues the most important being the prepayment penalty. With Commercial Mortgage Backed Securities (CMBS) loans, an inves-tor may have yield maintenance clauses and with other loans there may be percentage payoff between 1 and 5 percent of the outstanding loan balance, which might last over ten years. These penalties are a significant is-

sue and need to be calculated into the costs of sale as one makes the critical decisions to sell and exit the real es-tate investment marketplace. These significant expense hits (Tax and pre-payment penalties) frequently make real estate investors uneasy, so they tend to look at other ways to exit or reposition their real estate holdings.

Family Succession Many investors dream of leaving

their hard built real estate “nest egg” to their families. Unfortunately there are many challenges with this plan.

Most important is that one will need to find a family member who is mature enough, has an interest and wants to learn about the family’s ex-isting real estate investments. This typically proves very difficult to do.

Real estate investors tend to forget that they made many mistakes build-

ing their portfolios. They expect the next generation to make the “right” decisions, just like they did. This is an unrealistic expectation. The next generation needs to be mentored and educated; patiently, over time. Deci-sions need to be discussed.

An investor might request their successor(s) to take real estate and/or finance classes to prepare them for their future decision making. They should be involved in the ba-sics: Property inspections, financial reviews, attorney meetings, refinanc-ing and purchasing decisions. Final-ly they should draft long and short term plans on paper to insure a re-cord of their plans.

Use this process as a road map for family leadership. Remember that over time one needs to relinquish control, if the transition is going to be successful. This does not mean re-linquishing control of your income, just planning and decision making. Yes, mistakes will be made. Consider relinquishing control a small step at a time so that your successor(s) can learn in a controlled environment.

At the same time, if there are nu-merous “stakeholders”, children, grandchildren, nieces and nephews, create a reporting relationship that is reasonable. Decide who is going to make the decisions. Create dispute resolution processes. Don’t let dis-agreements in the family ruin your

investments. Have a plan B in place in case your

next generation manager gets ill and can no longer serve in his or her role.

Most important is that you, as the owner of the investments, under-stand the next generation’s needs. In every generation there is most likely one of the following:

• A thrifty spender

• A very conservative investor

• A very risk oriented investor

• A very sophisticated investor

• Someone that does not get along with the others

• Someone who needs cash to pay for the kids college

• Someone who needs cash to retire or make their house payment

• A child with a disability or a men-tal illness (a conservator needs to be appointed to protect their in-terest)

• Someone that has no interest in real estate at all and is willing to opt out of all decision making

• A son or daughter in law that have different ideas from the rest of the family.

One needs to plan ahead with your estate and real estate attorney to build a Trust structure that addresses the needs of the next generation. Re-member also that at some point in time (with the exception of those of you that have property in Alaska) that these real estate trusts that you build, will not last into perpetuity.

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Exit Strategy Pt. II ...continued from page 11




Note: Whichever option you choose, have a designated person to manage your real estate in case you are hit by a car or suddenly become incapacitated.]

Sale to partners This is the easiest one to accom-

plish, if you planned ahead. In other words you added a buy sell agree-ment into your other partnership agreements. Of course this is depen-dent on how your partnership was formed.

If one has planned this in advance, you most likely crafted a partnership

agreement or more likely formed an LLC. In that agreement you ad-dressed the terms of your partner-ship. If on the other hand you had been operating on love and trust alone, now is the time to draft those agreements and spell out everything, including how to value the real estate assets once you exit. You will want to sit down with your CPA and attorney to review the tax implications of this decision and plan out if it is possible to defer or avoid some of the income taxes on the sale of your shares of the property.

Note: Minority partner discount (fractional interest): Sales or partner-

ship interests are generally valued at Fair Market Value (FMV). The FMV of a third party arms-length trans-action may include a discount for owning a non-controlling minority interest. That is a matter between the buyer and seller. The IRS has accept-ed up to 30% value discounts in the valuation of fractional interests.

Transfers to trusts for estate plan-ning purposes may also be valued at a lesser amount – minority discount. The issue here is reduction of the gift/estate tax upon demise of the property owner. Contribute to Chari-table Organization You can always donate all or part of your properties to a charity via a charitable remain-der trust (CRT). The advantage to doing this is that the size of the tax deduction is based on the then cur-rent market value of the property, not its cost basis. If structured properly, the CRT can pay you an annuity (in-come for the balance of your life, or for a specified term, and then distrib-utes what is left over to the charity.) As a tax exempt entity, the CRT can sell the real estate donated tax free and reinvest the proceeds in income producing assets (that are typically more liquid than real estate). You do have to pay income taxes on the distributions you receive, but each payment may include a combination of ordinary income, capital gain and tax free return of principal. The char-ity can also buy an annuity in your name from the proceeds of the sale

of the real estate investment. Critical tax potholes you need to sidestep:

1. Substantiate the value with an appraisal as part of the donation pro-cess. Don’t just estimate a value; the IRS might disallow the donation. For properties over $500,000 you must at-tach an appraisal to your tax return.

2. If the charity sells the property within three years of the donation ( most do in the first year), and the property sells for less than the ap-praised value, the IRS will most like-ly challenge your deduction.

3. Donating properties that are free and clear is a cleaner process than donating one with a mortgage still in place. According to Attorney Peter Lennington of the Lennington Law firm PLLC, St Paul Minnesota, you might end up recognizing taxable income for some of the outstanding mortgage’s value.

4. Don’t prearrange the sale of the property before it is donated to the charity. If you do the IRS will disal-low the donation and you will have to pay capital gains taxes.

A simple summary on charitable real estate donations is available at: http://lennington.com/global_pic-tures/ Shouldyoudonaterealesta-tetocharity. pdf or go to the Oregon Community Foundation’s Website at www.oregoncf.org/donors/give.

Giving real estate to a charity is not easy. Many charities are not geared to accepting real estate; they want


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cash or stocks etc. If they take real es-tate they have to figure out how to manage it and sell it, not always an easy task. Most charities prefer dona-tions without a mortgage because of the complicated tax implications. It is not unusual to have a home donated to charity with a life estate attached also known as a “Gift of a Remainder Interest with a Life Estate”. This do-nation process takes time and has to be planned in advance. For more info see this link: www.weikellaw.com/news-story/ should-i-donate-my-house-charitypart- 4-donating-your-house-andreserving- life-estate.

Repositioning your real estate portfolio One way to simplify your real estate portfolio is to reposition your assets. Assuming you have a multifamily portfolio, you might want to transition out of those as-sets and trade into quality triple net (NNN) investments, with longer term leases. There are trade-offs in making this decision, primarily as the market changes you can typically adjust your rents with multifam-ily tenancies. Commercial long-term leases don’t have the same flexibility and the rents with national AAA ten-ant leased properties, which typically only increase 10% over a five year pe-riod with adjustments coming at the lease anniversary mark. On the other hand they are triple net leases and the

tenants are picking up almost all of the costs in taking care of their build-ings. Though it bears remembering that critical to a successful invest-ment in a NNN property are a great location and a financially strong ten-ant. This may mean that you trade a higher yield for a lower yield but the benefit is a long term tenant and an easy monthly check with no mid-night calls for maintenance. Note: Single tenant investments exist with medical, retail, industrial and of-fice tenancies. It pays to do some re-search before you decide on a tenant and an industry group. Use of 1031 exchange to an invest in an UPREIT (Umbrella Partnership Real Estate In-vestment Trust) Basically to take ad-vantage of an UPREIT, you sell your property on the open market using a 1031 exchange and then using your 1031 proceeds you invest in a REIT. Then, by virtue of a 721 exchange, the assets are traded into shares of the REIT. It is possible to just trade your investment into a REIT, but that rarely happens because UPREITs want to be able to choose their own property focus.

It looks like this: The first step is selling the relin-

quished property and structuring a 1031 Exchange. However, instead of searching for suitable replacement property, the investor identifies and

acquires a fractional interest (tenant-in-common interest) in real estate that the REIT has already designated. This completes the 1031 Exchange portion of the transaction. The sec-ond step is to contribute the fraction-al interest into the operating partner-ship after a holding period of 12 to 24 months as part of a 721 Exchange (tax deferred contribution into a partner-ship). The investor receives an inter-est in the operating partnership (OP) in exchange for his or her contribu-tion of the real estate and is now ef-fectively part of the REIT.

www.exeter1031.com/article_up-REIT_1031_721.aspx

Benefits of an UPREIT The ben-efits of an UPREIT are numerous, most importantly they deliver a tax deferral strategy to the holder of the real estate. In trade for your property, you receive a return on your invest-ment and someone else is managing it for you. The real estate investor just has to cash the quarterly check and does not have to pay capital gains on the sale of the real estate asset.

To summarize an UPREIT:

• Provides a viable tax deferral/ avoidance exit strategy to proper-ty owners facing significant capi-tal gain tax liabilities on the sale of appreciated property with a low tax basis.

• Allows diversification of real es-

tate holdings (i.e., OP Unit Hold-ers have an interest in a portfolio of properties instead of just one).

• Gives one potential to convert liquid‚ long-term assets (i.e.‚ real estate) into more saleable securi-ties (i.e., OP Units - REIT Share - Cash).

• Eliminates or reduces property management responsibilities or concerns.

• Provides quarterly income distri-butions.

• Provides potential to recognize unrealized gains as earnings.

• Can provide professional man-agement and expertise in capital markets.

• Avoids risk of negative cash flow.

• Establishes estate simplification.

• Allows the owner to dispose of property in a way that maximizes its value.

• Can improve cash position through potential leveraging of OP Units.

More information through this link: http://www.broadstone.com/realestate- services/upreit/ UPREITs can help you restructure your real es-tate assets and make it easier to give away or inherit after your death. If





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structured correctly, ownership in UPREITS might not result in a tax-

able event until the shares are sold; however when doing business with another company you must carefully vet the strength of the company, its history and its future goals, as well as the experience of the officers running the REIT.

Additionally, remember they are trying to make a buck as well. It is very important to understand all of the costs that are involved with in-vesting with an UPREIT and the ups

and downs of the stock market as well.

Note: Fore more details regard-ing the definition of an UPREIT, see (http://www.exeter1031.com/ arti-cle_upREIT_1031_721.aspx) from the Exeter 1031 website

TIC investments:Tenant in common investments

were a common real estate invest-ment vehicle before the market downturn in 2008. Then the short term mortgages that many of them

were financed with needed to be re-financed and financial institutions were loath to refinance, because va-cancy rates had increased and in-come had declined. Many investors lost significant assets due to the so called “TIC Meltdown”. All was not as advertised and the SEC decided that these were securities and needed to be sold by stock brokers with se-curities licenses vs real estate agents.

On the other hand, out of this challenge a few companies in Utah, Rockwell and Realty Net Advisors, decided that they could mitigate in-vestment risk by taking investors 1031 returns and place then into NNN investments where no loan was needed. In other words 100 % of the purchase price for a single tenant investment came from 1031 proceeds that investors placed in the pool. They also focused on very small in-vestments in the $1,000,000 range, possibly to avoid securities regula-tions. This means less risk for the investors, because the worst thing that could happen to the investors is the loss of the tenant, resulting in an empty building they have to re-tenant. They cannot lose the building to a financial institution since there is no loan in place. In addition, the TIC sponsors mitigate this risk, by only choosing high quality national ten-ants. They keep it simple. They col-

lect the rent, charge a management fee, inspect the property and then send a check to the investor, {Note* There is no loan in this scenario so no mortgage to pay off, this helps with upside on the yield for the property.). Average returns are in the conserva-tive but steady 5-7% range. This also means though that you don’t have help from Uncle Sam in this kind of transaction i.e. an interest expense write off. Additionally, in this kind of a transaction don’t get the benefit of leverage which could increase your returns. The downside is that you are in a type of a partnership and when you want to exit from this structure, you have to live by the TIC agree-ment. Basically in this structure, much like the UPREIT structure, you have ceded control of the investment to a third party. If the third party mismanages your property/ies, you may lose all of the return from your investment. For more on the down-side risk see this link: Note: don’t forget that when you complete a 1031 exchange you also have to replace the debt, if any, you have in place in the replacement property. For more details follow these links: www.securitieslawyersblog.com/2013 /10/30/tenants-common/ www.realtynetadvisors.com/ www.rock-welltic.com/ Hire a property/asset





manager Many investors hate spend-ing money to have their properties managed, but a good property man-ager is worth his/ her weight in gold. Life is simplified. You can travel, work and enjoy your family and not have to pay daily attention to your property, though you still need to be involved with your property. In pre-paring for retirement, you can have a property manager manage your assets for you and for the next gen-eration as well. Annual or semian-nual property inspections, reviewing financial reports and involvement in capital expense decisions are still on your required list of things to do. These are things that your spouse/life companion can also do, should you be unable to due to an illness or other incapacity. If you have signifi-cant assets, you might hire an expe-rienced real estate professional in the form of an asset manager who makes all of your decisions for you, from acquisition to disposition, from long range planning, to holding property managers accountable. They typi-cally are paid a fee for services. In some cases banks have trust depart-ments that also can manage prop-erties for you either with their own staff or through the use of property managers; they would perform this in an asset management role, much as they manage stocks and bonds for their clients. Conclusion So how do you best protect yourself when you are ready to retire from active real es-tate investing? Which one of the exit

strategies do you use?

1. Selling your real estate invest-ments

2. Family succession planning

3. Selling to partners

4. Contributing to a charitable orga-nization

5. Repositioning your portfolio 6. Using a 1031 exchange to invest in an UPREIT (Umbrella Partner-ship Real Estate Investment Trust)

7. Tenant in Common Investments

8. Hiring a property manager

In the end your own personal situ-ation and personal preferences will dictate or influence your decisions. I always fall back on the thoughts of George S. Clason and his book published in 1926, The Richest Man in Babylon.* Some of his key points were as follows:

“Gold clingeth to the protection of the cautious owner who invests it under the advice of men wise in its handling.

Gold slippeth away from the man who invests it in businesses or pur-poses with which he is not familiar or which are not approved by those skilled in its keep.

Gold flees the man who would force it to impossible earnings or who followeth the alluring advice of tricksters and schemers or who trusts it to his own inexperience and romantic desires in investment.”

Bottom line is that you need to carefully investigate all of your in-vestment strategies. You should hire advisors you trust. Hire experienced CPA’s, Attorneys, and real estate advisors. Spend some of that hard earned money to protect the rest of the corpus. Seek out specialists in estate planning and real estate. I rec-ommend that you do not have your employment attorney tell you what to do. The real estate attorney, who is an expert at evictions, is the wrong person. You need to talk to someone that understands all of the exit strate-gies. Interview and meet many peo-ple. If your gut tells you that you are over your head, trust your gut. You will find the answer that is right for you; it just may take some time! Plan ahead!

Don’t let the tail wag the dog, un-derstand all of the tax implications (estate tax and real estate capital gains taxes) first before you make a final decision.

*The Richest Man in Babylon - The Success Secrets of the Ancients, by George S. Clason. Publisher - Signet / First published in 1926

Clifford A. Hockley is President of Bluestone & Hockley Real Estate Ser-vices, greater Portland’s full service real estate brokerage and property management company. Founded in 1972, Bluestone & Hockley’s staff totals nearly 110 employees, includ-ing 20 licensed brokers. The compa-

ny’s property management division serves commercial buildings, apart-ments, condominium associations and houses in the Portland/Van-couver metro area, while the broker-age division facilitates both leasing and sales of investment properties throughout Oregon and Washing-ton. Cliff earned a degree in Political Science from Claremont McKenna College and holds an MBA from Wil-lamette University. He is a Certified Property Manager and has achieved his Certified Commercial Investment Member designation (CCIM). Blue-stone & Hockley Real Estate Services is an Accredited Management Orga-nization (AMO) by the Institute of Real Estate Management (IREM).

Cliff is a member of the Institute of Real Estate Management and was named Certified Property Manager of the year in 2001 and 2003. Cliff is a frequent contributor to industry newsletters.

Bluestone & Hockley offers cus-tomized brokerage, property and asset management, as well as main-tenance services to property owners and investors throughout the Port-land/Vancouver metro area. The company’s full-service approach benefits busy property owners and investors, who know they can count on Bluestone & Hockley for high quality real estate services start to finish.


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Three MoreWays to Fill those VacanciesBy: by Marc CourtenayPropertyManager.com a Service of AppFolio

Here are three ideas from my upcoming article series titled “50 Ways to Fill Your

Vacancies”. Like you, I’m fired up about the idea of having as many marketing tools as possible to man-age properties effectively.

As a property owner and/or man-ager, you may already have many successful ways to quickly fill your vacancies with well-qualified new residents. My hope is that I can add a long list of intuitive and counter-in-tuitive suggestions that have worked and will keep on working.

So here are three more suggestions that can insure that the rental income stream keeps flowing to your clients and yourself.

1. Go to the restaurants you fre-quent the most. Ask the owner or manager to allow you to display a tastefully crafted “take one” box at the check-out counter or hostess ta-ble. Make sure it clearly displays the message that a gift certificate for that restaurant will be given to the indi-vidual who takes one of the special

display cards and gives it to a pros-pect who becomes a resident.

A variation of this is to tell the restaurant owner, manager or host-ess that if someone rents one of your units, you’ll buy a gift certificate from the restaurant and give it to a new patron who has never been to their restaurant. It will generate a fresh batch of regular customer for the restaurant and a repetitive source of referrals to you. You’ll be amazed how many restaurants will love the idea as they’re always looking for new ways to increase their clientel.

2. It may seem old-fashioned in this age of digital, mobile media, but creating a full-page, colorful, glossy hand-out that lists all of the benefits, accoutrements, and features of your available rental still works. Make sure you show some photos of how nice the vacant unit looks, and when you take the photo “stage it” with a few perky pieces of furniture or wall furnishings.

List any extra features like a new dishwasher or free Wi-Fi and provide information about the local area, bus routes, schools, laundry and conve-niently popular shopping venue.




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by Marc Courtenay

Don’t let what happened to a property management com-pany in Las Vegas, Nevada

happen to you. The company had set up a convenient lock box so resi-dents could drop off their checks af-ter hours.

The worst case scenario unfolded on a hot summer’s evening in July when thieves who had noticed the drop box of the property manage-ment company found a way to pry it open and steal the contents.

Dozens of innocent renters had their checks stolen before they were cashed. The property managers said that the thieves took between $20,000 and $30,000 in checks. They also stole residents’ identities.

The property management com-pany involved worries about the information the thieves were able to get their hand on.

“Their bank information is out there now, their name, address. Can identity theft be taken? We don’t know,” said one of the realtors.

According to the story, thieves had stolen from the drop box at least four times in the past two and a half years.

In response the property manag-ers had purchased more lighting, cameras and even a more solid drop box but even those measures couldn’t stop the criminals.

“Everyone is upset. Owners didn’t get their money on time. Tenants said they paid their rent,” the employee quoted in the news story said.

One of those checks belonged to a 26-year-old resident who was quick to act. When he found out about the burglary when he received a call from his rental agency he immedi-ately called to cancel the check.

Is the property management com-pany liable for the identities stolen, the time lost and the emotional dis-tress such an incident causes? That may be an unnecessary risk the com-pany has exposed itself to.

Now, according to the story, pay-ments for the company’s 400 renters are going to be made online, but the Las Vegas Metro Police say the dam-age has most likely already been done.

“Basically, what they do is they at-tempt to remove the existing ink off the check. At that point, what they have is a valid account number. They then forge the checks and attempt to

cash them at other locations,” Metro Police officer Jose Hernandez said.

If that isn’t bad enough, the realty company that manages the proper-ties says renters still owe rent, even if their check were stolen and cashed. That could end in more legal hassles and bad feelings.

Police recommend that the vic-tims change their account numbers immediately and file a police report concerning the personal information that was on their checks.

This could have all been avoided if the property management company had used a streamlined, easy-to-use online payment system like the one

offered by AppFolio Property Man-ager.

Its online rent platform system gives residents multiple ways to pay their rent online. This saves everyone time, and time is money!

The residents can pay securely and conveniently 24/7 which will eliminate late payments and security breaches. With such affordable tech-nology services available there’s no reason crimes like this should hap-pen.

Because the payments are au-tomatically entered into AppFolio Property Manager, the property man-

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How the Internet of Things Will Change Property Security and Monitoring

By: Adam Justice, Grid Connect

Rental property owners and managers are always look-ing for ways to provide value

to renters without incurring large expenses that lead to an increase in lease rates. Security is one area that managers can beef up without break-ing the bank thanks to a new tech-nology trend called the Internet of Things (IOT).

The ability to connect new types of devices, such as sensors, to the In-ternet is core to the concept of IOT. It has created a new portable and low-cost security solution.

Traditional security without the monthly fees

Using a wireless sensor, prop-erty managers can easily secure and monitor areas that should be off limits, such as maintenance areas, equipment closets and the rental of-fice. These wireless sensors can be installed easily and configured to no-tify managers if an area is accessed. These notifications can be by email, phone call, text or even Twitter, de-pending on the manager’s prefer-

ences.Wireless sensors are attractive to

property managers because there’s no need to pay expensive monthly monitoring fees or to be subject to false alarm charges from the police. Once the sensor is purchased and in-stalled, it connects to the property’s WiFi to transmit notifications. Soon,

devices will be able to connect via the local cellular network, creating even more flexibility for property managers.

These sensors are especially use-ful for businesses without an elec-trical outlet be-cause they run on batteries. This is helpful for pools and other open areas with specified hours. Managers can be notified if someone is in a restricted area dur-ing off-hours, thereby limiting the

property’s liability.Monitoring preferences can be

very specific. For example, the rental office sensor could be programmed only to provide notifications during non-office hours. Sensors in these types of areas can be programmed to only provide notifications during “closed” hours.

Sensor portability keeps costs downSince sensors are portable, prop-

erty managers can install security sensors in vacant units and move them when the unit is leased. This can ensure that there are not break-ins to vacant units, possibly causing thousands of dollars in damage and other headaches.

Property managers who are look-ing for a low-cost way to increase renter value can install the sensors in individual rental units and allow renters to program the sensor with their own specific preferences.

For example, renters could set up a security or motion sensor and pro-gram it to monitor only when they are at work. This gives renters peace of mind that their unit is secure with-out incurring monthly fees and pro-vides a significant selling advantage

for the property.

Beyond securityWireless sensors can be used for

more than security. Since water dam-age can be very expensive to repair if not detected early, it is a big con-cern in multi-tenant units, as well as vacation condos. A small leak on the top floor of an apartment building can quickly spread to units on other floors.

Wireless sensors can monitor for the presence of water, then quickly notify the building manager or main-tenance supervisor, minimizing the damage.

Wireless sensors also can be used to monitor temperature swings in units, which helps managers have better control over heating and cool-ing bills.

About the author: Adam Justice is vice president of Grid Connect, a

manufacturer of the ConnectSense prod-uct line of wireless sensors. He can be

reached at [email protected] or on Twitter @adamjustice.

Internet of Things (IOT) refers to uniquely identifi-

able objects and their virtual representations in an Inter-

net-like structure.



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You’ll be providing a valuable ser-vice that few property managers take the time to offer. Let your prospects take your hand-out and tell them to call you if they have any questions. Ask for their contact info so you can follow up.

3. Ask your current residents, clients and “happy campers” for a glowing testimonial of what it’s like to be a resident in one of your well-maintained and thoughtfully man-

aged buildings. Let your prospects know ahead of time how much cur-rent and past residents appreciated your services. Ask for as many tes-timonials as possible, and use them to attract more owner-clients as well as prospective renters to fill your va-cancies.

There you have three more ideas on how to fill your vacancies as fast as possible. Keep in mind that if you haven’t tried these ideas lately, you

can’t objectively know why they work or how they work.

These ideas derive from my prop-erty manager colleagues and my own experiences. Together we have many decades of management and marketing expertise and that’s why I literally have at least 50 of these tried and tested tools.

They’re based on the principles that if you’re willing to do what few property managers are willing to do,

you’ll have the kind of success that few will enjoy and experience. Also, your clients and residents don’t re-ally care how much you know until they know how much you care. So get busy and show them!

Rent Checks Stolen ...continued from page 25

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agement staff avoids the time previ-ously spent entering rent checks or money orders.

On top of that there is no need to enter data in multiple systems. It’s all recorded and documented by the online service provider.

A built-in, complete payment platform for accepting rent online is a game changer for the property manager and the residents! I’ll bet the victims in Las Vegas wish they’d used an online platform like AppFo-

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Three More Ways ...continued from page 24

Rental Housing Journal - On-Site (Seattle) - April 2014

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