Hot Topics in Property Management. Real Estate Investor Success Summit 2012

Transcription

1 Hot Topics in Property Management Real Estate Investor Success Summit 2012

2 Echo Summit: Quality, Consistency, Integrity 23 employees managing ~1,000 properties in Denver area Single family Multi family (apts) High-touch, high-quality Strong innovation in process, technology, systems Honored as #1 Fastest Growing Private Company by Denver Business Journal in 2010 and

3 Market Trends

4 From 2006 to 2010, the number of renter households jumped by 692,000 annually on average, to 37 million, while the number of owner households fell on net by 201,000 annually. But let s look at the reality Source: THE STATE OF THE NATION S HOUSING JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY 4

5 The Rental Market Is Still Historically Static Homeownership rates consistently in 65-68% range Rental rates consistently in 30-33% range Takeaway: Investors and Agents can relax. Even though we are seeing a net migration to Rentals, it does not disrupt the overall historical magnitudes of either market. Source: THE STATE OF THE NATION S HOUSING JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY 5

6 Homeownership vs- Rental Trends Overall, a 2.5% decline in homeownweship over last decade 6

7 Still Good Time To Be A Landlord 37 M rentals nationwide Denver area: 378,000 rentals Average rent: ~$1,150 Rent increase: 2% MF, 4.5% SF Vacancy: 5% MF, 2.5% SF Source: THE STATE OF THE NATION S HOUSING JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY 7

8 Spread between counties shrinking, Adams County continually lagging Source: Colorado Division of Housing Single-Family Housing Vacancy and Rent Survey

9 Boulder/Douglas, then everything else Very small margin between the 2 nd level counties Source: Colorado Division of Housing Single-Family Housing Vacancy and Rent Survey

10 Mid-20 s on average, but the devil is in the details (area, month, pricing ) Source: Colorado Division of Housing Single-Family Housing Vacancy and Rent Survey

11 Hot Trouble Spots

12 How Do We Legally Regain Possession of a Property? 12

13 Notice to Correct / Eviction Notice Gives tenant a short period of time to remedy a problem, or face possible eviction 3-Day Demand (Pay or Quit) Pay SPECIAL attention to exact street name, number, etc Substantial Violation For gross violations of the lease, this can also help speed the eviction process. Ties in with the Crime & Drug Free Addendum Agreement Regarding Eviction (ARE) If tenant is late with rent (etc), use this instead of taking them to court. If they fail to meet demands of ARE, it will be easier to evict them Mandatory Notices 13

14 3 beds or 4? How Truth in Advertizing Could Ruin Your Life You advertize a property as 4 bedrooms, and one of the bedrooms is a non-conforming basement bedroom. The county gets tipped off (this DOES happen), does an inspection, and makes one of the tenants move out. Now you have a big problem, since as an RE professional you advertized this as a 4 bed. In a bad case, you may have to pay for a move. In a slightly worse case, you will also be subsidizing the owner some lost rent. In a disaster scenario, a fire breaks out in the 4 th bedroom and kills someone. Now the rest of your life may be impacted. Who thought Property Management could be so much fun? 14

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16 Warranty of Habitability: HB Effective on leases entered into after September 1st, 2008 Resident cannot waive the warranty of habitability in a lease and no default language that would limit remedies in the lease Uninhabitable: one of the following may not be lacking: water proofing & weather protection unbroken windows & doors running water & reasonable amount of hot water electrical lighting common areas must be clean, sanitary, free from debris, filth & rubbish must have an appropriate extermination response to rodent or vermin infestations throughout the rental premises (ask a professional to write up what an appropriate response is for each type of infestation so you have it) an adequate number of exterior garbage receptacles adequately maintained floors, stairways & railings, maintaining all locks on exterior doors and windows that are designed to be opened compliance with all applicable building, housing and health codes May be considered uninhabitable if it lacks one of the key characteristics above OR if it is otherwise unfit for human habitation, it is materially dangerous or hazardous to a tenant s life, heath, or safety 16

17 Warranty of Habitability: HB Once you have received written notice (move in checklist, maintenance forms or e- mail) of the condition you have to cure within a reasonable time frame Good practice is to make sure it is documented in writing if a work order is delayed due to parts, uncooperative tenants, etc that it is writing from the vendor, and followed up on in writing by the property manager Tenants have statutory duties to maintain the premises Nothing in the new law prevents you from evicting a tenant for non-payment Tenant remedies if you breach the warranty of habitability: lease termination injunction withholding of rent Lease termination: problem makes the property uninhabitable, must have given you written notice of the problem, you must have failed to cure within a reasonable time, tenant must have sent a 2nd written notice of intent to terminate and you must fail to remedy within 5 business days of the 2nd notice They then can vacate days after the 2nd notice 17

18 Warranty of Habitability: HB Tenant may seek injunctive relief in district court Tenant may claim breach, withhold rent and then later assert the breach as defense to an eviction action. If they file in court against withholding of rent, they must pay into the registry of the court all or part of the rent accrued after due consideration of expenses already incurred by the tenant based upon the landlord s breach If you breach tenant can recover damages from the diminution in value or for other damages directly arising from this breach Eviction trials will likely be longer and more involved, if they assert warranty of habitability you will have to be more prepared for an eviction trial Defenses: If tenant prevents or interfered with curing Not a defense to a non-monetary violation Third parties over whom you have no control You can still non-renew a lease without it being considered retaliation WH requires compliance with applicable building and health codes, so make sure to audit # of bedrooms in advertizing! Keep eye out for bills like SB

19 Application Essentials Selection Criteria Full Resident Approval Criteria can be viewed on the echo Summit website under Property Management Renters Download Forms, or by contacting us directly. Be careful!!! Have to apply your criteria consistently and fairly to each applicant. Income Credit Criminal Bankruptcy Pets Eviction Occupancy Medical Marijuana Fair Housing 19

20 The Lease Package Lease Agreement Mold Disclosure Pest Control Addendum Crime / Drug-Free Addendum Xcel Landlord Notification Xcel Turn On/Off Form ACH for Direct Deposit Rules and Regs Inspection Report HOA Docs Pre 1979 LBP Disclosure LBP Brochure 20

21 Lease Agreement Essentials Pets, HOA Docs, etc HOAs can discriminate Pets, Breeds, Parking 21

22 Lease Agreement Essentials Application of Funds Any payment received by Manager from Resident shall be first applied to Late Charges, daily late fees, return check charges and other payments due under this agreement prior to being applied to regular monthly rent. Make it clear how incoming funds are applied This approach creates a downward spiral, but holds renters accountable HAVE to enforce, or will open you up to discrimination lawsuit 22

23 Lease Agreement Essentials Renters Insurance Resident is required to obtain Renter s Insurance in an amount sufficient to cover the replacement cost of all Resident s personal property, as well as existing property such as appliances, but no less than $50,000. Resident shall name Manager as an additional interest on the Renter s Insurance Policy. Renters insurance protects you, your owner, and the tenant Additional Interest ensures they do not cancel insurance w/o your notice Tenant needs to insure everything that the Landlord Insurance does not (e.g. internal inclusions) 23

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25 PM Reconciliations: 3 Way Tie-Over Bank Statement- Rent This is mandatory for licensed PMs managing for others PM Software Owner Ledger Tenant Ledger Owner Funds Rent / SD

26 New Addendums

27 Pest Control Addendum Bedbugs are back Courts hate this need to document yourself carefully What is your documented policy for dealing with this? Pest Control Addendum Before DISCLOSURE to tenant as early as possible Prove that you have documented procedures and followed them Prove that you disclosed to tenant your procedure After Document all successes and failures Be present with vendor to pre-inspect For tenants that were not ready, document this and take photos Warn with formal demand for compliance, evict if necessary 27

28 Crime / Drug-Free Addendum Resident, any members of resident s household, a guest or other person affiliated in any way with the Resident shall not engage in any criminal activity Resident shall not engage in any act which facilitates criminal activity Resident will not permit the premises to be used for or to facilitate criminal activity, including drug related criminal activity Resident shall not engage in the unlawful manufacturing, selling, using, storing, or giving of a controlled substance Resident shall not engage in any illegal activity, including prostitution, criminal street gang activity, threats or intimidation, assault on or near the premises... VIOLATION OF THE ABOVE PROVISIONS SHALL BE CONSIDERED A MATERIAL AND IRREPARABLE VIOLATION OF THE LEASE AND SUFFICIENT CAUSE FOR IMMEDIATE TERMINATION OF TENANCY. In case of a conflict between the provisions of this lease addendum and any other provisions of the lease, the provisions of this addendum shall govern... 28

29 Mold and Environmental Addendum Mold contaminants may exist in the Property. These contaminants generally grow in places where there is or may have been excessive moisture, such as where leakage may have occurred in roofs, pipes, walls, plant pots, or where there has been flooding; these conditions may be identified with a typical home inspection, though not all molds are detectable by visual inspection. Further, other environmental hazard might exist such as, but not limited to radon, asbestos, lead, methane gas, and water /air contaminants. Agent advises that every Resident should consider having a mold/environmental test performed by a professional previous to their taking occupancy of the Property. This is especially necessary if any disclosure documents indicate that there is evidence of past or present moisture, standing water or water intrusion at the Property. Owner has disclosed to Agent that other than those items listed: NONE, that the Owner has not conducted any environmental tests on the property, is unaware of the presence of standing water or any water intrusion affecting the property, is not aware of broken pipes or other items that may have occurred when property was previously owned that may have caused mold to exist, and has not conducted any tests for environmental hazards on the property. Resident agrees to hold the Agent harmless in the event any mold contaminants or environmental hazards are discovered on the Property. Resident understands that all inspections should be completed previous to lease start date. If Resident fails to complete and obtain all appropriate tests, including these for mold, this will constitute a waiver of the inspection and Resident shall accept the Property in as-is condition, with no future recourse against the Owner or Agent. Must disclose presence or nonpresence of hazardous substances Best to let them get a professional inspection BEFORE they move in If professional findings are not to their liking, allow them out of the lease obligation 29

30 Resource Library Videos Solution notes Ref materials Calculators 30

31 From 2006 to 2010, the number of renter households jumped by 692,000 annually on average, to 37 million, while the number of owner households fell on net by 201,000 annually. As the economic recovery takes hold, rental demand is likely to remain strong thanks to the aging of the echo-boom generation into young adulthood the years when they are most likely to form independent households. As job growth picks up, more of those under age 30 should head out on their own and add to rental demand. Source: THE STATE OF THE NATION S HOUSING JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY 31

32 Thank You. 32