Tenant advocates in California have received enough signatures for a ballot initiative to repeal the Costa-Hawkins Rental Housing Act. This would allow extreme Rent Control in California cities and counties where many saw rents increase by 40% over the past 3 years.
The purpose of Rent Control is to give cities and counties the ability to better deal with affordable housing by not allowing rents to increase at such a high rate. However, many feel that this will not work and will actually “pour gasoline on the fire of California’s affordable housing crisis”. Many people will stay in a rent controlled unit for many years well after their need for affordable housing. This still limits the amount of affordable housing for those who really need it.
If this initiative is passed, many landlords’ investments will no longer be profitable. If this happens, there are fears of foregoing repairs and letting buildings deteriorate, or even selling and moving their investments somewhere else. If the current landlords sell to owner-occupants, which is likely, that property is no longer on the rental market, further limiting affordable housing.
In Idaho, this could result in even more people from California investing in Idaho properties. This could continue to drive the property values, and therefore, rents higher as well!
We will have to wait and see what happens this November!!!
Full article below: California Draws Battle Lines in Rent Control Conflict
Kathy Fettke | 28 May 2018
The battle lines have been drawn in the war over California rent control. Tenant advocates announced recently they have enough signatures for a ballot initiative to repeal the Costa-Hawkins Act, which could open the floodgates for extreme rent control in California and put some landlords right out of business.
Why Rent Control Doesn’t Work
While the idea of rent control may sound like a nice one (help keep real estate affordable for families who otherwise would be forced to move), the concept is, by nature, easy to exploit. Tenants may hold onto low-rent apartments for years despite employment gains and higher salaries, crippling landlords’ ability to collect market rents for decades. This not only hurts the landlords, it also eliminates affordable housing for people who truly need it and creates a stagnant rental market.
Rent control also creates a losing situation for landlords in terms of operating income. If a landlord cannot generate enough money to maintain properties, they will be forced to forego repairs and let buildings deteriorate. In California, that can lead to tenants being able to legally refuse to pay rent while being protected from eviction if a trigger maintenance issue arises. Landlords often tend to opt out of the rental game, sell their properties, and put their money elsewhere. If they sell to owner-occupants, which is likely, that removes those rentals from the market entirely and, again, reduces available housing for the renters who desperately need it.
We are on the Cusp of Massive Rent Control
If this ballot measure wins voter approval, investors with property in California are on the cusp of what could be a massive shift toward rent control. Cities that currently have rent control ordinances include Berkeley, Beverly Hills, East Palo Alto, Hayward, Los Angeles, Los Gatos, Mountain View, Oakland, Palm Springs, Richmond, San Francisco, San Jose, Santa Monica, and West Hollywood. Notably, Thousand Oaks has rent control but is phasing it out.
Because a repeal of Costa-Hawkins will substantially broaden the legal alternatives for cities to implement rent control, California landlords currently operating under the protection of the act may need to rethink their investment plans if the measure is approved in November.
If this ballot passes and you own California rental real estate, you may need to reevaluate your investment strategy.
It's that time of the year again where Ada County homeowners and Landlord's will be receiving their tax assessment notices. On average, we're anticipating about a 12% increase in assessed values on residential homes. Small multifamily (2-4) units will see about a 15-18% increase on their assessed values. The range for apartments is great, at 3-15% with the average only being about 5%. For 2018, single family homes are appreciating at about 1% per month while multi-family are appreciating at 1 to 1.5% per month.
Below is a summary of some of the metrics that we are traking for our leasing department. It showcases our low vacancy rate and our high renewal rate. As you can see below our vacancy for all of 2018 has been significantly lower then the national rate. It also highlights our average days on market which is 12 days. What this illustrates to our investors is that on average theior properties are getting re rented 18 days prior to the old tenant vacating. Things are still looking strong in this market with high rents and low vacancies. We will see what the busy time brings.
Narpm has published its 1st quasrter vacancy survey for the 2018 year. The rents are still increasing for both multi and single family. The overall vacancy was up just slightly from last quarter but that is pretty standard for this time of year. FRPM has a current vacancy of .8% which is recod for this time of year. There is still more demand for housing then units available so things are renting up very quickly with minimal turn time. The market remains strong and FRPM predicts that it will stay that way through the summer.
Read full report here: 1st quarter NARPM vacancy survey
Many real estate investors are aware of how critical interest rates are in the evaluation and performance trajectory of their investment properties. As a result of the 2008 financial crisis the Federal Reserve (the Fed) is taking unprecedented action and raising interest rates more frequently than they have in the past. In the past 3 years the Fed has raised short term interest rates 6 times. It has been suggested that they increase exponentially by the end of 2018.
This article also suggests that investors to run sensitivity tests upwards of 5% interest when developing pro forma on ventures.
See Full Article Below
On Wednesday the 10 Yr Treasury Yield hit a level (3.04%) not seen for the past seven years, i.e., since 2011. See chart below.
10 Yr T Yield - Past 8 Years
The Federal Reserve rate setting committee meets next week, and five more times thereafter during 2018. The Fed recent history of raising rates is not consoling. Since December 2015 through March 2018 the Fed has raised short-term rates six times.
None of us know what will happen to rates in the next 6 - 12 months. However, members of the Federal Reserve rate setting committee have been saber rattling. Some have suggested that the Fed will increase short term rates three or even four times during the balance of 2018. Looking out further into an even less discernible future, they have suggested another three rate increases in 2019.
What does that portend for long-term interest rates? Who knows? However, if you are running development pro forma on projects it would be advisable to run sensitivity tests at 5.0% interest up to 6.0% interest.
Obviously, the arithmetic of increasing rates is to drive down the amount of loan principal that can be supported by higher debt service burden. Debt Service Coverage mandates will eat into loan proceeds.
Moe Therrien with Valbridge Property Advisors recently submitted his quarterly survey. This is a very thorough report that includes, historic data on rents and vacancy by bedroom count. Additionally, it breaks down apartments from those with full amenities, Boise downtown, and Low Income Housing.
The data is supported by providing multi-family building permits, Ada County single family home prices, and employment statistics. Currently, there are just over 2,200 units within the Boise area under construction with another 3,300 proposed to start within the next 6 months. Year to date there are over 2,400 units that have been completed since 2016. The survey is conlcuded with a Boise Vacancy Report reflecting how many vacant units each project has. This report includes Rent Ranges, number of occupied units, total units, and the percent of occupied units at each complex. Boise is still growing very quickly and is projected to continue to grow and remain in high demand among renters. Please see the attached survey from Moe Therrien for additional details. Moe Therrien with Valbridge Property Advisors Survey
When I was first interviewed at First Rate, I was asked, “Who do you think is the most important; our property owners, our vendors, or our tenants?” Would they want me to say the property owners? After all, it’s the management fees that pay the bills. What about our vendors? Without them, we wouldn’t be able to maintain the rental unit. Of course, tenants are important because they pay the rent. I considered this for a moment before telling them what I thought: “they are all important”.
Without our property owners, we have nothing to manage. We should respect what we were entrusted to take care of. Without our vendors, we can’t maintain the properties. We must cultivate a solid and honest working relationship with every business that we utilize. Finally, our tenants must be valued as well. They are the reason for the rental property existing – without tenants, where is our business?
It’s not lost on me that there is a common idea that property managers or landlords are the “bad guys.” I’ve even had that mentality myself with property management companies I’ve rented from. “They’re just here to collect a check”. I honestly believe, particularly regarding the value of tenants, and in my time here at FRPM, I have been pleasantly surprised at the mentality here at First Rate.
Since working at First Rate, I am now very aware that this is simply not the case, at least not with FRPM. From my very first week here it was shown to me that tenants are to be respected, looked out for, and treated with the same care that any employee here would want to be treated.
It’s important to remember that FRPM is entrusted to care for the place where people live. A company that does not value those they rent to are destined to struggle to rent again. And it’s not only the right thing to do; treating tenants with empathy and compassion is also an intelligent business decision.
It’s important to be a company that property owners are interested in doing business with. We want to make sure our business has the quality and integrity that owners look for when finding a company to manage their investment. The appeal to property owners, however, is just half of the equation.
With so much new housing popping up in the area and several property management companies to look after it, tenants have a nice diverse market to pick from. Speaking from a renter’s perspective, the address is only part of what I evaluate when looking to live somewhere. The moment I know who’s managing an area, I do my research and see what I can find about the property manager. All it takes is a couple bad reviews online or some negative opinions from friends for me to rethink renting from that company.
Think about when you rented an apartment or a dorm or a room in someone’s house, and think back to both the positive and negative experiences that it entailed. Take a breath, pause, and think to yourself, “How would I like to be treated if I was renting from a property management company?”
Swope Investment Properties regularly sends out a newsletter that includes good articles and listing information. In the most recent article, realtor Eric Uhlenhoff shared his perspective to rising prices. Click http://boise-rentals.com/investor-newsletter-email-sign-up here to subscribe to Swope Investment properties newsletters.
Finding Value Despite Shrinking Margins
In Shane's article in the Nov 17 newsletter, he described the buyer challenges in
the current market. Not much has changed since then, but we are seeing a bit more
inventory in the residential income space. Yes, margins and cap rates continue to
decline, and we've seen some rising interest rates too, which isn't helping our
Buyers! So, is this another bubble or what?
Back in 2007, when evaluating income properties in the Treasure Valley, using a
sensible downpayment, finding a property with a positive cashflow was like
searching for unicorns. Rents didn't support the values and yet many
buyers willingly accepted negative cashflow in hopes of feasting upon rising prices in
the future. However, in today's market, we're still seeing discerning buyers insist on
cash-on-cash returns. And of course financing with nothing down is not a thing
the way it was back in 2007, so fundamentally, this market is way different
So, where's the value for a buyer? Well, several things haven't changed. Financing
a residential income property (4 units or less) can still be done on a 30-year fixed
loan (thumbs up!) and the tax laws governing depreciation and other tax benefits
are all still in place and may have gotten better depending on individual
circumstances (two thumbs up!).
No question, the sale prices have come up, but so too have the rents. Consider
also that overall vacancy rates are historically low and with rising interest rates this
is likely to keep that vacancy low. All these changing conditions should force
change in our analysis and in this market, we should always take a solid look at
the achievable rents when doing your evaluation as many sellers are not keeping up
with the market.
Continuing to look at cash-on-cash returns and/or cap rate is still okay (and
important!). However, in this market, add in the principle pay-down and the tax
benefits, and compare these combined returns against the risks associated with a
very high stock market and rising inflation. This is both smart and necessary.
My crystal ball is far from clear when looking out beyond what I am having for
lunch. Real estate investing should be for the long term and when time permits,
allow the Swope Team to help analyze and advise a strategy... cuz there's value out
Read full Newsletter here: February 2018
2 months in to the 2018 rental year we are still seeing low vacancy. FRPM vacancy right now is 1.12% which is slightly higher than our rate in January but still low compared to the national average. We are seeing lots of activity on the rental side with increased amount of phone calls and property inquiries. The market trends and vacancy are still allowing for rental increases. FRPM predicts that this low vacancy trend and higher rates continues as we approach Spring/Summer, which is the peak season for rentals in Boise area.
Recently Forbes Real Estate Council posted an article, titled, Four Trends that Will Impact Rental Markets in 2018, and we have included the full text below. The article below seems to be written by Nathaniel Kunes with AppFolio, which is a property management software. We enjoy comparing national trends to what we are seeing here in the Boise and surrounding areas. One thing for sure, Boise seems to fit their #2 and #3, which are population shifts, affordability, and hot markets.
1. Occupancy Rate Fall and rent Growth Slows:
Even though we don't consider Boise a major metropolitan area, we're still finding the Boise market to be hot. This article talks about most areas within the US, especially single family rentals, slowing with falling occupancy rates. We must admit, that January has been a very slow month for single family rentals here in Boise, but we do not believe this is due to any negative market trend. Historically Boise rentals, especially single family rentals are much more difficult to rent in the winter months. When it comes to single family homes, it's best to have leases expire outside the school year. People just don't like to move while their kids are in school. Click here to view the SW Idaho Chapter of the National Association of Residential Property Managers 4th quarter rental market update.
2. Population Shifts and Affordability Reshape the Landscape:
According to this article, there are two things that drive the rental market - population shifts and affordability. Boise's population and job growth continue to climb and although home and rent prices also continue to rise, their still considered very affordable in comparison.
3. Hottest Market Opportunities:
Boise fits their definition of a hot rental market because of the job and population growth. According to this article investors looking to expand their properties should consider regions like Boise.
4. Tech Disruption:
Technology was late to getting to property management, but it's here now and moving at a rapid pace. It will surely play a role. Let's be real, technology is expensive and unfortunately I think we'll see further considaton of property management companies which I think long-term, will hurt the non-institutional investors.
Nathaniel Kunes, Forbes Councils
As we embark on 2018, there is a multitude of changes and trends in the real estate market that will impact all aspects of the rental industry, and it’s important for real estate professionals to explore them. From investors keying into market growth areas to property managers making adjustments to meet tenant expectations, creating strategies that align with market trends will lead to greater success in 2018 and beyond.
1. Occupancy Rates Fall And Rent Growth Slows
Rent demand, while hot in major metropolitan areas, is actually slowing in most areas of the United States, especially in single-family rentals. Where we’ve been seeing 6–8% growth in rental prices in years past, we’ll see that trajectory stall out, eventually nearing historical rent growth average (around 2%). Much of that may have to do with falling occupancy rates, which often result from increased supply in some cities as construction catches up. There is also a pent-up demand for moving as many people have been in their current rental much longer than historical trends.
With less demand, property managers will need to get more aggressive about attracting and keeping renters.
To attract residents, smart marketing is critical. Investing in automated vacancy posting syndication and moving marketing spend to areas with the highest returns are sure-fire ways to be certain posts gets attention, and quickly.
It’s also important to differentiate when trying to fill vacancies. Through unique perks or amenities, property managers can not only attract more renters but also target specific segments of renters through the amenities they offer. For example, if in a market that caters to younger generations, property managers should consider adding common areas throughout a building to inspire a sense of community, something that millennials and Gen Z value.
However, cool amenities alone won’t keep the renters. Retaining them requires meeting tenants’ needs and expectations. Having systems and the appropriate technology in place to handle maintenance requests immediately can dramatically change tenants’ perceptions of their living situation and make them more likely to renew a lease. Offering excellent and quick service is essential in keeping renters happy.
2. Population Shifts And Affordability Reshape The Landscape
There are two things that drive the rental market — population shifts and affordability. As affordability becomes a more pressing issue for many Americans, we will see the government, especially state governments, stepping in more frequently to offer affordability programs and tax credits. There already exist laws in many states that require a certain ratio of every new residential building to provide affordable housing. Additionally, for people who work in expensive residential areas but cannot afford housing there, we’re starting to see local movements and initiatives working to help those people afford to rent or buy housing. In San Francisco, the city is spending $44 million for a teacher housing initiative, enabling teachers to live and work in one of the most expensive cities in the country.
The biggest trend in affordable housing is the shift away from public housing to housing choice voucher programs. This will privatize much of the affordable housing stock and require a greater number of property managers to understand and be able to manage affordable housing programs. There is also a lot of compliance involved in both affordable and rent-controlled housing, so, if not an expert in this type of housing, investors should look to a specialized property management company to manage this kind of property.
Demographic shifts will also reshape parts of the real estate landscape. An increasing trend for baby boomers and the empty nester population is to actually move out of the suburbs and into urban environments, often choosing to rent instead of buy. This has dramatically changed the profile of the modern renter to one that spans age demographics. It’s important for property managers and investors to take into account both the older demographics and the youngest demographics (Gen Z) when determining the most appealing spaces, amenities and how to align service with tenant expectations.
3. Hottest Market Opportunities
While we have all heard about the popularity of moving to cities like Nashville — the entire Southeast, in fact, and the Northwest are becoming a popular living destinations for many. After all, hot rental markets tend to follow job and population growth. Investors looking to expand their properties should consider these regions.
Other, non-geographic opportunities are senior housing, affordable housing and commercial. Senior housing, in particular, will be a huge market segment. The population of U.S. adults 65 and over will more than double by 2060, reaching 98 million. That will be nearly one-quarter of the population, a number that reinforces a strong need for senior housing. Taking multifamily complexes and converting them into independent 55-plus communities could be a smart choice for developers and investors, depending on their local senior housing needs.
4. Tech Disruption
The use of intelligent systems, machine learning and AI applications in software will, increasingly, be a huge agent of change in the real estate industry. This disruption will alter everything from property valuation all the way to property management — an area where the use of AI and chatbots can offer tenants better service and automate maintenance workflows.
Consider this scenario: A tenant finds a toilet leaking and can alert management via text. They then receive an automated response from a chatbot communicating next steps, and the tech automatically creates a work order for the vendor.
Voice technology will also become huge in property management, potentially even allowing renters to pay rent by voice and make maintenance requests.
Tech disruption even changes the game in real estate marketing, letting agents use virtual reality to offer prospective tenants a tour of the inside of a home or apartment unit without ever meeting in person.
Ultimately, real estate professionals who are able to act on some of these emerging changes will find greater success. They’ll make more strategic business decisions that align not only with the ever-changing variables of the real estate landscape but also with the evolving set of modern-day tenant expectations, giving them an edge with market competition.
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