NSP Training Video: Scattered Site, Single-Family Rental Management INTERVIEW (David Morton voice over): Most people in my business don't get excited about scattered site management. It s more difficult, it clearly has challenges that you wouldn t have if you have a multi-family single location property. But they're not challenges that you can't overcome. Tthey actually provide some good opportunities, too. NARRATOR (Peter Werwath VO): When NSP grantees in weak real estate markets have difficulty selling their single family homes, renting them to qualified tenants can be a viable alternative. But you have to be very clear about the program goals. What is your target income group? How much rent can tenants afford? Will tenants have maintenance responsibilities? It s a lot to think about. NARRATOR (Peter Werwath on camera): Hello. I m Peter Werwath with Enterprise Community Partners. I m pleased to host this video for HUD s Neighborhood Stabilization Program designed to help NSP Grantees better understand the many considerations that go into managing scattered site rentals. There are a number of recommendations that we ll cover in the next half an hour. I hope they ll provide some useful guidance as you implement and fine tune your own scattered-site rental program. First, let s think about the benefits. A scattered-site rental program may be the only feasible strategy in weak markets where single-family homes just aren t selling.. Additionally, the experience of living in a scattered-site rental unit can help tenants prepare for homeownership. And finally, well-managed rental properties are an asset to the neighborhood at any time, but especially when communities are hit with large numbers of foreclosed, abandoned, and vacant homes. But, on the flip side, there are unquestionably challenges. Scattered site rentals are just more expensive to inspect, monitor and maintain than multifamily buildings. It s not as efficient. And all of these considerations will affect how much you can pay to buy and rehab units, where you decide to purchase, and whether you have the right staff. David Morton is the Executive Director of the Reno Housing Authority. His agency works in the neighboring Nevada cities of Reno and Sparks, as well as surrounding Washoe County. 1
Nevada is one of those states that has been particularly hard hit by the housing crisis, but we were also the leaders in the development of housing, in the years leading up to this. I mean, it was boom, it was really boom time ah in Nevada in Las Vegas and Reno, housing being built everywhere And then when the things started slowing down, people thought, well, this is temporary. But it just kept going. And what were beautiful homes selling for $250,000 dollars are now selling for half that, or less. And you ve got just a huge percentage of the market that s underwater. we were, again, one of those boom states in a boom economy and now it s just the reverse. As with most housing authorities, Reno had concentrated on multi-family properties and the Section 8 voucher program. At the City of Reno s request, however, Reno Housing Authority had acquired and renovated some single family homes in an inner city neighborhood. The City and local residents were very pleased with the results, so when local governments received 4.7 million dollars from the state of Nevada under the NSP1 program, they turned to David and his staff to use 4.2 million of it to operate a scatteredsite rental program in some hard hit neighborhoods. So far, David and his staff have had remarkable success, winning the trust and approval of both local governments and the residential communities his agency has worked in. Penny Henry represents one of those communities. She manages the Highland Ranch Homeowner s Association, a subdivision in northwest Reno with over sixteen hundred single family homes. INTERVIEW (Penny Henry): In our case, we had close to sixty homes... in the first year... of bank foreclosures. All of these financial institutions are out of the state. So when they foreclose on a home here in Reno, they let it sit for twelve to eighteen months before anyone can do anything with it. When Reno Housing came to us and said, we d like to clean these properties up and use them, it was a perfect answer. It was a win win situation. We had several residents who were concerned about... what was going to happen with these properties, how they were going to handle them, who would live here. We asked David Morton to come and talk to the people at one of our board meetings and he answered all of their questions. It took him about three hours. We had close to, I would say, fifty five homes when they started. Now, forty two of them are owned by Reno Housing. They re occupied. They are nice, and in some cases, their landscaping s... better than the other people on the block. 2
I have told a lot of the other associations about the NSP program. And they are just all for it. They have seen how quickly it turned over the homes in our community. Let s look more closely at some basic program design decisions, starting with setting your target areas. First, you have to decide which income levels you re targeting. That will drive decisions about financing and the types of homes you choose to purchase. Here are a couple of scenarios: If you ll be serving tenants below 50% of area median income, start by calculating what rents are affordable to people who earn that amount of money. Then compare that to the total development costs and long term operating expenses of the unit. You must ensure tenants can meet their rent based on income and available subsidies. On the other hand, if tenants will have incomes from 50 to 120% of area median income, you will be able to charge higher rents and, as a result, properties may be able to carry more debt. Once you have determined your target market, now you have to decide on which NSP eligible target areas you will focus your efforts. As an example, the Reno Housing Authority is working in four NSP eligible and approved target neighborhoods within the greater Reno area, all of which were hit hard by the foreclosure crisis. I think we ve got about 80 actually under rent right now. I ve got over 100 that will be rented. Initially, we were more looking for good deals, ok, a house that we thought was a good deal that we could fix up at a good price. As we ve gone forward in this, we have become much more targeted in our efforts. Some of the homes I bought initially were two story large homes. At this point, I m not doing that. I m looking at long term management if we re going to rent it, I want to be able to maintain and manage it readily over the next 20 years. In the Oliver-Montello neighborhood, RHA s targeted approach led to an immediate impact on the area. We re in what s called the Oliver Montello neighborhood here. It s a historic black neighborhood. At one time a very nice neighborhood, fallen into a lot of problems with drugs and gangs, just general rundown part of town. The city decided that they really wanted to focus on this neighborhood and try to improve things, try to make life better for the residents living here. And, again shore up a neighborhood that had been neglected. 3
You really ought to focus on the focal point of the neighborhood and in this case it s this park, Pat Baker Park. The rule I gave staff is that we didn t look at anything that was more than two blocks from the park. Well, there was a drug house right across the street from where I m standing. We bought it with RHA money and we got rid of it. Two doors down we bought a house that needs a lot of work. But because it was across from the park we decided that it was worth it. Looking just a block away, up this street, on the third house is a gorgeous house. It wasn t gorgeous when we bought it, it didn t come close to gorgeous, but it is now. And it will be rented in the next two weeks. We ve gone a block further behind to deal with houses there. We were able to pick up four houses in a very tight location, so the impact of what we ve done is pretty impressive. Once you ve selected your homes, the first thing you have to do, if you re using NSP funds, is make sure that the properties are eligible. They have to meet the definitions of foreclosed, abandoned or vacant, and be located in a target neighborhood. The foreclosed units have to be purchased at a discounted price. Once you are clear that they are NSP eligible and that they are in your target area, then it s time to think strategically about rehab. The NSP program encourages renovations that help reduce energy use and lower utility bills for low-income tenants. This can be done by installing Energy Star appliances and energy efficient windows, and increasing the amount of insulation to save on heating and cooling. In dry, sunny climates, something as simple as installing clotheslines helps tenants save electricity, and reduces wear and tear on dryers, too. In the development phase, you also want to look at ways to reduce ongoing maintenance costs. Making repeated trips to homes to patch a leaky roof or fix a faulty switch will be costly in staff time, travel, gas, and materials. Take care of all deferred maintenance during the rehab process and use durable, low-maintenance materials. Paying a little more at this stage will mean lower maintenance costs going forward. We obviously want to do all of the things we can readily do from an energy stand point. We ve tried to do all of the low flow toilets, the shower heads that are adjusted all of the easy fixes we re doing as a matter of routine. But if we re having to replace something, we want to make sure that we put it in at the highest energy efficiency level we can. And that applies to not only gas and energy in the house, but the yards instead of planting big grass yards that are just huge water wasters, what we ve opted to do is xeriscape. Xeriscaping is something that I never heard of back in Alabama and Tennessee and places that I lived. It was just foreign to me. But in our climate, it makes all the sense in the world. I won t say it s totally maintenance free but it s certainly a low maintenance cost for the long haul. Literally, turning on the irrigation system in the 4
spring and turning it off in the fall will be the essence of it and making sure that the plants are getting the water that they should. The combination of low maintenance and a very attractive appearance so that the neighbors feel that we have helped build up and improve the neighborhood. That's important. I would look at your situation, see what makes the most sense in your climate, in your type of environment, and respond accordingly. Once you ve bought and rehabbed the homes, the next step is to find the tenants. As with any rental program, you have to find tenants who can afford the rents and who meet the income eligibility requirements at the time they move in. For scattered-site rentals, though, you also want to find tenants who will be a good match for the neighborhood, will help maintain their yards and walkways, and who will take care of their homes. It can be a challenge to find tenants that can afford the rent and also meet the income guidelines, especially for rental programs serving very low income families. You may have to conduct more active and creative marketing campaigns in order to find enough good, qualified tenants. In all cases, be sure that your staff is well trained in Fair Housing law so that all the marketing and intake activities are handled properly. When we first started buying houses that we knew would be rentals, we made sure that the residents in our various complexes, the resident councils, the um tenant groups, were aware of this program coming. I wanted to make sure that my current tenants were aware of this and had the opportunity to participate, if they were so inclined and if they had a stable source of income. A number of our current residents have been able to participate. But we don't limit it to that. Just recently we did something I have never done before and never thought I would do we actually have run radio ads for the single family homes to expand the pool of applicants. We re concerned that we place people in these homes who will take care of them and who will be good neighbors. So, we have established some sort of bottom line criteria. One is that they don't have a recent criminal history, and I m not talking about, you know, somebody jaywalks. I m talking about things that are felonies. If somebody has a recent drug history or a violent criminal record, we re not going to let them into this program. We want to make sure that somebody has a decent rental history or we are not going to house them. Anthony Lipkowitz, with his wife and children, is typical of the well-screened tenants who are taking advantage of the opportunity to move into a single-family home they previously couldn t afford. 5
INTERVIEW (Anthony Lipkowitz): We seen an ad that ah the Reno housing was buying up homes and remanufacturing them and looking for tenants. And we went down there and we put in our names, and then they gave us an interview. We came back and they wanted background check and income, three references About five, six months later, they gave us a couple properties to look at and we went around, looked at the properties, and we found this place and we were happy with it. We re doing good. We re a happy family. And many of Reno Housing Authority s new tenants, like the Gonzalez family, are able to rent a house for the first time, which has a significant impact on the health and happiness of their family. INTERVIEW (Jose Gonzalez - spoken in Spanish): Translation: In the apartments you can live fine, because the maintenance people take care of your needs and all that, but in a house it s very different because there s more room more freedom and it s like your family has more of a bond because of the room you have, and you socialize more with going out to the back yard and playing with your family, or out front, too, and it s very different. It s very different and we are very pleased with having the house. INTERVIEW (Maria Gonzalez): Yes, there s pride. I look at it and I say, Wow, we live in this house. We ve been so lucky and blessed that we have this house and it s a really great house; it s a great community, too. So now you ve bought and renovated your homes, and found the right tenants, but how do you handle ongoing tenant and property management? Properly done, managing scattered-site rentals requires careful attention on a daily basis. There are a number of things we ve done that I think have helped us. One of those is we ve developed what we call a site book. Any property that I own, I want to be able to quickly know the layout of the units, the amenities, the design, the specs. When we started acquiring single family homes, I quickly realized each of these is different. And if you ve got a problem at night, or weekends, and you are trying to get into that unit to deal with something, you need to know as much as you possibly can about that property before you get out there. You want to know what kind of refrigerators you ve got, what range, water heaters, furnaces, what the warranties on those are. If you ve 6
got somebody that s going to be going out to that site, they need to quickly have a reference so that they know what to expect when they get there in terms of utilities, appliances, anything that could go wrong. For our regular maintenance program, we have a fairly sophisticated work order system. I get computer printouts of every work order that s been issued and I can tell you how long it s been outstanding, when it was completed, I can compile them in any number of ways. We have been doing that for years, and we ve perfected that to a pretty high level. So when now I have a hundred single family homes, it s a simple thing to add those to the same process. Another option is to hire a property management company, particularly if you don t have much staff capacity to manage single-family rentals. In addition, a property management company can be especially helpful in reaching particular target markets and dealing with properties in multiple neighborhoods. However, bringing in an outside management company requires active oversight by staff with the time and experience to do so. Plan on doing full property inspections at least once a year, and regular site visits to inspect the exterior and grounds. The site visits can be as simple as a driving by the units to make sure that yards are free from trash or weeds, there are no junk cars in the driveway, or sidewalks are shoveled. We did decide early on that we should use a private management company to help us. Part of our rentals were focused on a population that was more middle income. These properties that we are renting through the management company, the rents are still reduced, somewhat, but they are rented at a level that HUD views as appropriate for middle income people. So we follow the same rules, but a different income group. And, because it s a different income group, and the whole idea of seeking applicants and making sure we are gearing to that population, we really felt to use a good management company was the better way to go here. There are a whole host of things that have been positive about this. The first is the residents who have gotten just a great opportunity to live in really nice housing and in nice neighborhoods with good schools. From an upward mobility stand point, it couldn t be better. But the neighborhoods obviously are what it was all about originally. The whole purpose of NSP I was to help neighborhoods that were hard hit with foreclosures. And I think we have had a significant impact. We haven't turned things around, we haven t changed the whole neighborhood. It s been much bigger than us. But we have had a significant impact, we really have And our houses are shining examples in those neighborhoods of attractive, well managed, well maintained properties and I think 7
the neighbors and the home owner associations all recognize that. And I know for a fact that the local governments are quite appreciative of what we ve done. 8