The SW Idaho Narpm chapter just released the 4th quarter vacancy results. The results are pretty standard for this time of year, with vacancy up a little. At this time of year, we find that renters don't like to move due to the holidays and cold weather. Even in the slower time, First Rate has kept a vacancy of under 1% for the last quarter. Getting rentals filled this time of year can be challenging so it takes some creativity with move-in specials and sometimes shorter leases. The average rents overall are still strong for this time of year and with spring renewals we see opportunity to increase rents
Read full report here: SW Idaho Narpm Vacancy Survey
Melissa Sharone, President
The government shutdown has hit an all time record of one month. Many aspects of our nation have been negatively affected by the implications of the shut down.
What does this mean for subsidized housing programs? In December & January, the contracts of 1,150 Section 8 units expired, putting residents at risk of losing their home. Local experts worry this could be tragic if there are no alternatives. While housing authorities are coming up with contingency plans, there is concern there is no end in sight.
Should the government remain shut down for a month, BCACHA is working diligently to implement contingency plans. Planning for the worst, but hoping for the best. Professionals believe their plan will maintain subsidized housing program assistance through the end of February.
Much of the funding for BCACHA comes from the federal government. The shutdown has the potential to impact Public Housing & Housing Choice Voucher (AKA Section 8) used to assist low-income families pay portions of rent.
BCACHA Executive Director DeAnna Watson reported they spend $1 million in rental assistance every month. If this shutdown continues, BCACHA will struggle to fund the month of March in rental assistance. This will affect more than 2,800 households.
Turning properties quickly is extremely important in Property Management. Now by turning, we mean getting the property rent ready for the new tenant to move in. The owner, tenant, and property management company all benefit from having the property turned as quickly as possible. With our business model, turning properties quickly is even more important as we pre-lease. This means we show and rent the unit while the exiting tenant is still there. With that said, nine times out of ten, our properties are rented before the old tenant moves out. Basically, the only time that a property is not rented is the time it takes to turn the unit.
The property management company benefits from quick turns by being providing measurable that potential owners are looking for. When an owner is looking into a property management company they need to know you are good for their investment. Just like if you were hiring a landscaper to work on your yard, you are going to want to know what kind of work they can do before you hire them. When you can show an interested owner that you can get properties turned and re-rented in a timely manner, it lets them know that their investment is safe with you. The owner benefits from having the unit turned quickly as it reduces the days they go without rent. An owner is losing around $30 average per day the unit is vacant!
As the property managers we do not want to see the owners losing money because the turn between tenants is taking too long. We want to show our owners that our end goal is the same as their end goal, this is getting vacant units turned and re-rented. In 2017 our average business days it took to turn a unit was 5.83 days. In 2018 our average was 4.68 business days. Our goal for 2019 is 4 business days or less to have the units turned and rent ready.
Tenants can have many different reasons why they are moving. They may have just had another baby and need more space. Maybe they are going to college and they are moving into their first apartment, or they took a promotion at work and are new to the Boise area. Whatever the reason for the move is, they want to be in the new apartment as soon as they can and having the unit turned quickly will only help them achieve this goal!
To reach the goals we have set for our company, choosing vendors that we can trust to get the job done is important. Keeping in constant contact with the vendors helps us make sure the turn is completed timely as well as up to our standards. When you have three to four vendors that are going in and out of the unit being organized helps to know where each unit is during the tuning process.
Turns are an important part of property management. We know that the tenants that move in are not going to stay forever. When we all work together to get the units turned, this makes our owners and tenants happy to do business with us. Our main focus as a property management company is to try and ensure that everyone we are working with is taken care of.
Vacancy rates are still relevant, although they may not tell the whole story. I compare it to Earned Runs Average. That used to be what baseball (pitchers) were judged off of, but then it just became a cliché that somewhat lost its importance (seemingly). Well, as time went on, we wanted more explanations for all the idiosyncrasies within the game. That’s when the age of saber metrics was born. Where we developed stats like Wins Against Replacement, Walks and Hits Per Innings Pitched, ect. Despite all this, in 2018, ERA is still a very valued statistic in baseball. The point is, vacancy can in fact still tell you a lot, although maybe not the whole story. Here is why you should still care about that number, especially when looking at a Property Manager.
We are all here for the money, right? This is after all, an investment, correct? Well then let me relate this to you in monetary terms. Vacancy is just lost income, let’s just call it what it is. Let us say that you manage a $1,000.00 single family home, let’s assume (for ease of the example) that there are no expenses associated with it. Over the course of the year, you would bring in $12,000.00, or roughly $33.00 per day. With our vacancy rate of 0.59%, that translates into a cost to you of only (if you were a standalone unit) about $71.00 for the year due to vacancy. Southwest Idaho’s Average Vacancy Rate is 2.3%, this would translate into about $277.00/ year due simply to the vacancy rate, or $206.00 more per year, per unit you own. This compounds very quickly as you add units, but I don’t need to tell anyone that! As illustrated in the graph below, we out perform the industry as a whole in this statistic. Part of this, admittedly, is the wonderful market that we are in right now. Both the SW Idaho and First Rate Property Management have been enjoying the benefits of this (illustrated below).
Naturally, we will not be in this great of a market forever. Like all others, this is cyclical. But vacancy rate is not just a result born out of our high market, it is an indicator of something larger. That is, a healthy company and good customer service. This is why our vacancy rate stays so low over time. The graph below illustrates three important things that I feel are big factors in our success with this metric. Consistency, Efficiency and Honesty. These are why we have low vacancy rate. Other than May and June, we have stayed remarkably consistent in our vacancy rate over the last three years. When they are up for rent, on average for 2018, our units are on the market 13 days. Considering we usually shop them 30 days before they are vacant, most units don’t even see truly vacant time. This efficiently gets units off the market, either by a new renter or by a renewal. Finally, our renewal rate is very high due to tenants really enjoying their experience with us because we do business the honest way. Repeat business is, across the board, a great indicator of customer service.
So next time you see vacancy rate, don’t just scoff because it is cliché at this point. Really ask yourself, how does this relate to my position? How does this affect me? Chances are, it affects you more than you may realize.
First Rate Property Management is blessed to have great Landlords as our clients (we don’t just take anyone). Each of our clients provide their tenants with a welcoming gift that is delivered personally by a FRPM team member during the tenants move-in inspection. Well that’s what we call it, but it's really a move-in orientation. This is where we show the tenants how things work within their new home and annotate any issues that should not be charged to the tenant upon their move-out. Our move-in orientation is really something special, so perhaps we will write a blog about that process, but for now, it's back to the tenant gift. Some tenants thank us upon receiving the gift, but most thank us when the time in need comes. Best of all this gift provided by the property owner to their tenants has saved that owner an untold amount of service calls.
Let's start with the largest item, the toilet plunger. We learned that a majority of the tenants do not own a plunger. Many simply prefer to call their Landlord when they clog a drain or toilet. The few tenants that do have plungers generally have sink plungers that just don’t work that well. Not all plungers are equal. We provide this accordion style plunger because the ribbed/accordion generates considerable pressure that easily breaks up clogs. These plungers are so effective, one plumber states, “accordion plungers are definitely effective, but it's like using a chainsaw to trim your hedges”. Sounds like a perfect endorsement to us.
What in the world is that Orange zip tie looking thing? That’s a Drain Zip Strip which can be used over and over to clear clogged and slow running tubs, showers, and sink drains. Its free to the tenant and can save a $100 plumber service call.
A roll of bathroom tissue is provided for a couple of reasons. Toilet paper seems to be the one thing no body packs to move. So when tenants unpack and find a need to use the toilet, they have the provided roll, which prevents them from using and flushing unauthorized items that can lead to drainage issues. And as a test of who thoroughly reads these blogs, I will tell you that Tony wanted to put our logo on the bathroom tissue with a slogan of “First Rate Property Management, we can handle your Sh! ”.
We also provide tenants with a garbage disposal wrench. Garbage disposals aren’t meant to dispose of large quantities at once or coins, yet they seem to find their way in them. When not used properly, the disposals jam. Tenants can use this disposal wrench to free the blades and clear the matter causing the jam.
Lastly, we provide a tenant folder full of valuable and helpful information such as: lease documents, coupons to local businesses, FRPM team directory, referral incentive program, literature on the importance of having renter’s insurance and/or renter’s legal liability coverage, literature on furnace filters, emergency phone numbers, and important website links.
It's an odd looking gift that strikes funny conversation. It's appreciated by our tenants and saves unnecessary service calls (money).
FRPM manages hundreds of fourplexes and I tend to sell more fourplexes than anything else within Ada County (mostly Boise and Meridian), so I gather and report the data. The trends from the 4 plexes sales seem to be a good indicator of the Boise real estate investment market. Below are some graphs to help illustrate my points. Please note that there were no fourplexes sold within Ada county for the month of November.
Absorption rate: Is the rate at which available fourplexes are sold. Currently there is less than one month's supply listed on the MLS. We have a low supply and the demand continues to be great, so they are selling quickly. Obviously this is a good sign for Sellers. It means that new listings are going pending fairly quickly. So as a buyer, you want to have your ducks in a row. You will want to be in position to make a strong and clean offer quickly.
Average Price for Fourplex: Prices continue to creep upward. In January of 2017 the average was $372,000 and in September of 2018, the average was nearly $600,000. One could look at the chart and because we saw a drop in October and December, they could think values are dropping. I don't believe that is the case. We had a couple older 4 plexes with below market rents sell and skew the data.
Gross Rent Multiplier (GRM): Is the ratio of the price/value to its monthly rental income. The current 6-month average GRM for Ada County 4 plex is 152. I use GRM for a quick ballpark value as there are many more factors in determining actual value. To illustrate how to use GRM, let's assume that rents are $950 per month per unit. Using GRM, the ballpark value would be $950*4*152=$577,600. It's not uncommon for Landlords not to push rents. This is one reason why GRM alone won't determine value. But it's also a good reminder to potential sellers that if you are planning on listing soon, you should consider getting rents to market before listing.
Capitalization rate: Is the ratio of Net Operating Income to value/price. Since 4 plexes are considered residential, cap rate is just one of the factors used by a residential appraisers to determine value. Comparative sales weigh heavy on Fourplex appraisal valuations. As you can see, we've had a very slow, yet slight drop in cap rates over the past two years. This is a good trend in comparison to huge drop we saw in 2005. Values have continued to rise and they are rising just a little faster than rents.
Average Days-On-Market: Even in a super-hot market, It's hard to believe the average days-on-market for a Fourplex could be as little as 18 days. There are a couple of factors here. We are seeing a fair number of cash deals which can close much faster. But the biggest factor I see here is new construction. At least one brokerage is not posting their newly constructed Fourplexes on the MLS until the property is sold, which in affect shows zero days on market.
Recently, a local news station ran a story about high application fees, and asks, "Are Landlords unfairly profiting off Treasure Valley affordable housing crunch?" This prompted a number of inquiries to me asking if it's true. "Yes", I believe some are, which I explain below, but I do not think the majority are. The news story reported that some Landlords are charging as much as a $200 per application. Wow, that certainly seems high to me, so I have to believe that includes more services that were not mentioned. The application process has gotten a lot more technical than what it was 28 years ago when I first started. Due to poor screening, many Landlords got burned by poor quality tenants. As the screening became more detailed, some Landlords got sued for discrimination. I believe it is these two factors that opened the doors to a new market for third parties who specialize in tenant screening to help Landlords find qualified tenants, yet comply with laws, to include Fair Housing Laws. This is when costs went up.
Who is not profiting:
First Rate Property Management charges a $40 application fee and utilizes a third party company to run: a credit report with a FICO score, a national criminal search, an eviction search, collects current and former rental history, verifies employment, and verifies income. At this point, 80% of the application fee has been spent on third party charges. Then that data along with any reasonable modifications to the criteria is inputted in an automated decision tool to ensure all applicants are treated the same and fairly. So the remainder goes towards our own costs to process the application, which can take as little as a few minutes up to hours.
Who could be profiting:
For those property managers who do no screening whatsoever or only run a credit report from a single agency, yet charge a similar fee to those who are doing full screening, are likely profiting off their applications. In a multi-family dwelling, its discouraged to rent from someone who does not screen, as tenants want to know that their neighbors have been properly screened. For obvious reasons, Landlords want to hire property managers who are screening their tenants. Mind you, I have seen lenders charging as much as $60 for credit reports to home buyers and investors.
Also, I suppose those Landlords and property managers who's practice is to accept the best application could be profiting. This practice is frowned upon and opens the landlord into possible Fair Housing complaints. First approved, first in has become the industry standard.
1. Request a copy of the Landlords written rental policies and guidelines before applying. Most professional property managers will provide this on their website and with their applications. What is their criteria for: income, criminal history, rental history, and employment history?
2. What is their acceptance policy? Do they collect multiple applications and accept the best applicant, or do they accept the first applicant approved.
Profiting off the housing crunch:
I know of one company that allegedly profited off tenants for application and other fees, but they are no longer in business I think our housing crisis is more about Boise's growth than anything else. I sell investment properties and I can tell you that I am not seeing greed from the landlords. The truth is, even with rents increasing, investors have a lower net operating income in relation with the sales price/value of the property. That's right, homes and multi-family prices have shot through the roof. But so have other costs such as: labor costs are up which in return has increased maintenance costs substantially, property taxes are up, and so are insurance rates. I am no economist, so I can't say that slowing Boise's growth is the answer, but its growth certainly seems to be a factor in costs for the landlord and tenant alike. I do not blame either for what has happened.
The U.S. Census Bureau announced the following residential vacancy statistics for the third quarter of 2018.The National vacancy rates for the third quarter were 7.1% for rental housing.
As a general rule, 5%-8% vacancy is a good average although the city you are located in and rental market play a factor in this.
First Rate Property Management vacancy rate is currently 0.25%. The current vacancy rate for Ada/Canyon County is at 2.26%. Contributing factors that lead to these lower numbers are pre-leasing units that are currently on notice, marketing on several different levels (not just utilizing the internet platforms), constant communication with residents and interested parties, reasonable rent increases for both the owner and the resident, and quick response time for maintenance issues. These low vacancy trends we are seeing throughout the treasure valley are a great benefit for investors as property management companies will be able to push the rents. The demand for rental properties is far exceeding the supply.
The 3rd quarter NARPM survey results are out. Overall things still look good for this time of year. You will notice that the vacancy for single family homes is up right now. FRPM has found over the last month that single family home rentals are slower to get rented then the multifamily. As the winter approaches and the Holidays get closer we anticipate the single family rentals to remain slow. Rents overall are strong and still increasing some. It will be interesting to see what the market does once we get through the winter months and past the holidays.
Read full report here: 3rd Quarter NARPM Survey
The National Association of Residentail Property Managers published a recent survey conducted by the SW Idaho chapter of NARPM during the month of June 2018. The survey took 7,091 total homes into account. These multi-family and single-family homes are spread across both Ada and Canyon county.
The market is trending down heading into the winter months. According to these statistics dating back to 2014, the vacancy percentage is the lowest it’s been in quite some time considering the seasonality of this business.
First Rate Property Management’s vacancy rate in June 2018 was 0.72%. This is quite the improvement compared to last year’s 1.83%. First Rate manages a portfolio of apartment buildings, duplexes, and single family homes.
Of the 7,091 homes that were surveyed in June 2018, 2.03% were vacant. This is an opportunity for property management companies to capitalize on the market and really differentiate themselves among their competitors not only in the SW Idaho Chapter but even nationally.
The data shows vacancy rates to have decreased from 3.6% in Q1 to 2.0% in Q2. The rental rates in Ada County single family homes increased $149 per month per unit. We saw an increase of $6 per mont, per unit in single family homes just since the previous quarter. Assuming these trends continue, we can anticipate higher rents and lower vacancies than we’ve seen in half a decade.
You can find out more about Idaho’s premier organization of residential property management professionals at www.swidaho.narpm.org.
Leasing Team Leader
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