How Technology Is Disrupting The Apartment Rental Experience

Do you remember the last time you left home without your smartphone? Neither do I. We have integrated technology into almost every part of our daily lives. The average U.S. adult spends around three hours on their smartphones every day, from listening to music to scrolling through social media and streaming videos.

Today, technology is changing the way people engage with one of the oldest industries: real estate. It seems like just a few years ago that landlords faxed brokers black-and-white pictures of available apartments and agents would hang them on a bulletin board to display available properties.

Renting an apartment was a lengthy process that required in-person meetings, physically inspecting numerous properties and signing leases in an office space. Although the process might still feel lengthy in many cases, the accelerated rate at which technology has advanced has enabled us to streamline processes and make the apartment rental experience much faster and safer than it was only a few years back.

From Brick-And-Mortar To Smartphones

Residential real estate is reactionary. To remain competitive in a tough market, savvy brokerages have quickly adopted innovative online platforms that allow a faster flow of information and paperless transactions. While real estate agents continue to work from home, brokerages have shifted focus from their offices to their online presence.

Mergers and acquisitions have aided small and medium brokerages by eliminating fixed costs and sharing expenses. Having an online presence is now more critical than ever.

Numerous brokerages in the U.S are adopting video tours to easily share listings with their clients, social media and distinct advertising platforms. Video tours and virtual reality speed up the process by gathering feedback from potential clients. They also make the process safer by avoiding unnecessary physical inspections or gatherings that could lead to exposure to Covid-19.

Improving Potential Matches

The digitalization of the modern brokerage has allowed customers to use complex filters that improve their search for a new place to call home. A few years back, I had to select an apartment for rent from a printed list of properties attached to a wall. Today, a person can filter available properties online and may get as granular as looking for a two-bedroom rental apartment on the Upper East Side with a dishwasher and a walk-in closet that’s located in a pet-friendly building that has no elevator or doorman.

The ability to get very granular with an individual customer’s potential matches translates to a better quality of life and improved satisfaction during the apartment rental experience. It also shortens the time it takes them to find the perfect home.

Social Real Estate

From sharing video tours of available properties to signing legal documents online, technology has streamlined the process of buying and renting a home. People who fail to adopt new technologies will miss big opportunities.

Tech Companies Moving to Texas Fuel State’s Apartment Boom

In the last few months, several major California technology companies have announced plans to move to Texas—an exodus that will further fuel the Lone Star state’s ongoing  apartment construction boom. There are already currently 126,900 apartments under construction in Texas, making the state the national leader for new apartment construction, according to RENTCafe.

Nor is this influx likely to through the state’s supply-demand balance out of whack. “Texas holds the indisputable advantage of land use,” says Doug Ressler, manager of business intelligence at Yardi Matrix. “What’s great about it is that it enjoys an adequate availability to support population growth and migration, from dense cores to available exurban or suburban areas.”

Dallas is leading the state in new apartment construction with 49,000 new units under construction. In the last decade, more than 177,000 new units have been built in the market. Austin comes in second with 31,000 apartment units in the current construction pipeline and 22,600 of those units are located in Austin proper.

It isn’t surprising that these two markets, which account for more than half of the total apartment construction in the state, are also the primary locations for tech companies. Oracle and Tesla are both planning to move their California headquarters to Austin. Tesla alone says that it will create 5,000 new jobs and occupy 4 million to 5 million square feet of office space in the market. Oracle opened its Austin office campus in 2018, and the property supports 10,000 employees. Both companies have noted the business-friendly state and a large pool of tech workers as the reason for the move.

Hewlett Packard Enterprise Co. is also moving to the Lone Star state, but the firm is relocating to Houston, where it is building a new campus. Houston rivals Austin in terms of new apartment construction, with 28,600 new units in the pipeline, and more than 17,000 are landing in Houston proper. The city has been named the most popular market for corporate relocation and expansion.

San Antonio rounds out the list for apartment construction in the state with 10,900 new units in the pipeline.

Apartment construction has been robust in Texas for the last decade, with more than 500,000 new units in 2,000 new apartment buildings delivered in that time. Dallas has led the apartment construction activity with 177,400 new units added in the last 10 years, followed by Houston, which has seen 131,000 new apartment units come to market.

The apartment boom has also helped fuel growth in surrounding metros. Suburban Texas markets have grown in popularity among renters, many of which are offering many urban-style amenities found in the urban core, without the price tag and congestion. Texas has eight cities on RentCafe’s list of the top 20 suburbs in the US.

Cash for Keys – Could it Work for You?

Cash for keys may soon be on the rise. It’s an idea that might appeal to many landlords who want to incentivize tenants to leave their rentals and avoid a drawn out eviction process.

Cash for keys, in concept, is a simple, straightforward process, legal in all 50 states. It’s exactly what it sounds like: an agreement, entered into voluntarily by a landlord and tenant, in which cash or other value is provided to the tenant as an incentive for them to hand over the keys and move out of the rental.

Some landlords are already engaged in cash-for-keys contracts. It’s perfectly legal to do so even while state and federal eviction moratoriums are in place, as long as it is done in a non-threatening, voluntary and non-coercive manner on the part of the landlord. To be safe, consultation with an attorney, or the MassLandlords Helpline, is recommended before initiating or entertaining any cash-for-keys proposals.

A renter may also suggest cash for keys independently, without any prompting from the landlord, which can result in a move-out agreement.

Cash-for-Keys Mortgage Foreclosures vs. Rental Evictions

Cash for keys gained popularity during the housing crisis in 2008. Real estate owners, who represented banks, offered cash to underwater and nonpaying homeowners by the millions in heavy hit communities, in Florida, Southern California and other regions. Offering the strapped homeowners cash to vacate their homes saved banks from going through the costly and time-consuming process of foreclosure.

Over the years, landlords have also begun using cash for keys as a way to entice nonpaying renters, for example, to leave their residences instead of filing eviction notices, spending months in housing courts, sitting on empty rentals and paying court and other costs. Some landlords have also used cash for keys to encourage paying tenants to leave a unit that they want to renovate or sell, or vacate for other reasons.

For the purposes of this article, we refer to cash for keys between landlords and tenants.

Now or Later

It’s important to note: cash for keys, while it may be the answer for some landlords, is not a panacea for those with problem tenants, for example, nor an arrangement to be entered into lightly.

Landlords embarking on cash-for-keys agreements now, while eviction moratoriums are in place and courts are not hearing most housing cases, will have no recourse in the event tenants don’t comply with the agreement. Make certain both parties are entering the contract in good faith, are well-informed of their rights, and of the contract’s stipulations.

In some cases, it might be in the interest of landlords to hire a mediator to work with both parties – landlord and tenant – to negotiate an amenable agreement that all will adhere to throughout the process. If you opt not to hire a mediator, make certain that tenants know their rights in a cash-for-keys agreement, to avoid them from backing out of a deal later when they’ve received advice from others.

Eviction Pileup

Potentially looming at the other end of the state and federal eviction moratoriums now in place is a significant number of evictions. This situation could be avoided if the state government were to take legislative action, such as that proposed by MassLandlords, to guarantee housing for the long term. But short of further legislation, the eviction backlog could become substantial.

Conditions may also be affected by pending bills, such as HD.4878, a bill in the state legislature, sponsored by Reps. Kevin Honan and Mike Connolly, that could effectively lead to rent cancellation for a large percentage of landlords.

Easy Math

Evictions are almost always expensive. The total bill for an eviction in Massachusetts can tally more than $5,000, considering lost rent, attorney, court and constable fees, repairs and cleaning costs. In the next couple years, that amount will likely increase as courts become backlogged and may delay summary hearings for months (i.e., more lost rent).

The math is simple in a lot of situations:

A) Wait months or more than a year for your eviction case to be litigated while a nonpaying tenant occupies your rental (and possibly degrades its condition), then forfeit thousands of dollars in court costs, lost rent and attorney fees?

Or B) Offer your tenant a few thousand dollars to move out peacefully and quickly? The savings between cash for keys and an eviction can range from the low thousands to five figures in some outlying cases, even considering attorney consulting fees.

Meanwhile, you could have your rental reoccupied with a paying tenant within a month or two. Not to mention all the headaches you could avoid.

A Tough Pill to Swallow

 For some landlords, paying cash to a nonpaying tenant who owes thousands of dollars in back rent and may have damaged your property is anathema. Like rubbing salt in a wound.

But providing housing is a business, first and foremost. And while it may be emotionally difficult to hand over a pile of cash to a tenant who has given you headaches since the day they moved in, it may be the wisest business decision.

Some landlords also question the ethics of a cash-for-keys agreement. They argue that the practice could have the long-term effect of increasing squatting and rent delinquency by encouraging bad players to force landlords to hand them cash just in order to get them out of their property and avoid legal fees and headaches.

That scenario is possible in a few situations. But in the wake of coronavirus, the overwhelming percentage of delinquent renters will be the result of the pandemic response and economic downturn. There has always existed a fraction of squatters and intentional nonpayers gaming the system. It’s impossible to say how much that fraction could increase because word spread that cash for keys is a way to extort some cash from landlords.

Creative Solutions

In the wake of the coronavirus pandemic and response, once eviction moratoriums have been lifted, many landlords will be positioned to serve eviction notices as soon as they can to their delinquent tenants. In many cases – especially for tenants who have not suffered a loss of income but instead have taken advantage of the eviction moratorium to get free housing – eviction might be the logical course.

But for many other tenants – such as those who stopped paying rent because they lost jobs and income during coronavirus and response – landlords might consider alternatives to eviction, especially for good tenants who have regained employment and resumed rent payment.

Alternatives might include working with tenants to come to a compromise that will extend the tenancy for the long term while forfeiting some back rent. You could renegotiate back rent payments, for example, or restructure payments with some owed funds added in. Partial rent forgiveness might also be a prudent solution if it saves the arduous process of eviction.

But if you decide as a landlord that the relationship with your tenant is untenable, then cash for keys may be the better alternative.

How to Offer Cash for Keys

The process can be simple, but it depends on a few specifics. At its simplest, cash for keys is a transaction directly between landlord and tenant. No courts, constables or intermediaries needed.

(When court-enforced evictions are possible, however, cash-for-keys agreements may be entered into the court record. This action would give you a back-up plan in case your tenant doesn’t comply with the agreement.)

As stated above, hiring an attorney or mediator, or consulting the MassLandlords Helpline, might be a prudent step, at least to avoid any misunderstandings or surprises, and to provide additional assistance in case the court becomes involved.

As much as possible, try to keep emotion out of your cash-for-keys communications. It’s a business transaction, and in most cases will be a win-win solution (i.e., the least bad outcome) for landlord and tenant. Focus on the benefits.

Step 1: Draft a plan

Jot some parameters on paper, or use the MassLandlords Agreement to End Tenancy form to outline a proposal. Include a proposed amount to offer your tenant to incentivize a quick move-out. Decide on an amount to offer beforehand (see below).

This step offers an opportunity to be creative and flexible within the agreement. For example, you could offer, as part of the payment, to cover moving costs for your renter. Or maybe your cash-for-keys offer doesn’t involve actual payment at all, rather you could offer to forgive all the back rent owed in exchange for a voluntary move-out.

You might consider two or three offers that correspond with faster move-out schedules. If you want your tenant to move out sooner than later, you’ll likely need to offer a higher amount of cash.

This is an abstract that could be shared with an attorney for those who work with one, as recommended.

Step 2: Initiate a conversation with your tenant, either in person or via phone

Present your case and proposal evenly and clearly, as you would with a business proposition. There is no need to mention eviction during this conversation, especially if your intent is just to empty the rental for renovation or sale.

Outline the cash-for-keys concept, emphasizing the benefits to your tenant (i.e., cash in hand, no eviction record to hamper future efforts to find rental housing, etc.).

Your tenant might try to negotiate or counter-offer. Keep negotiation to a minimum. If an extortionist tenant suspects that you are vulnerable or willing to pay more to get rid of them they may take you to the cleaners. Choose a fair amount to open with and try to stick close to that figure.

Assuming your tenant agrees to a cash-for-keys settlement, spell out the agreement with your tenant, or share the MassLandlords Agreement to End Tenancy, a brief and convenient form that provides fields for the essential information and signatures.

Include the amount (or services) you will pay renters to move out. Include the date and time they agree to be vacated from the apartment – meaning all possessions are removed from the unit and any common areas, keys have been delivered to the landlord or agent, and the unit has been left “broom clean.”

Both you and your tenant must sign two copies in duplicate so you each have a signed record of the contract.

Step 2a: Escrow the money

 Whether or not you hire an attorney or mediator to assist with your cash-for-keys process, we recommend that you set aside the agreed cash amount for payment upon contract completion. To keep it simple, landlords could place the cash amount in a separate account and pay it out to complete the contract. You could also have your attorney or mediator escrow the cash and oversee the payment at your direction.

This is a step that removes emotion from the payment process, which can be a difficult step for some landlords. It also assures that tenants, who have voluntarily moved out as part of the cash-for-keys agreement, won’t have to wait for payment or chase the landlord to receive the cash owed them.

Step 3: Complete the contract

The cash-for-keys contract is completed when the rental is vacated at or before the agreed upon time and date, satisfactorily cleaned, and keys are in your hand.

Do not hand over any payment or order release of escrowed funds until those conditions are met. If your tenant has not met those conditions by the designated time (i.e., they are still moving out or cleaning beyond the time you both agreed), you have the option of considering the contract void.

Once you have the keys, the unit is in your possession, you have inspected the apartment to your satisfaction and paid your tenant the amount you agreed to, the contract is completed.

How Much to Pay?

First, as a comparative exercise, calculate how much you project an eviction would cost you. You will need to build in more months than usual of lost rent because of the backlog of cases after the eviction moratorium is lifted. For example, if your eviction is delayed six months or more due to the backlog of cases, your costs will increase substantially.

Also think about how much an eviction would cost in normal times, with little or no court backlog. One rule of thumb is to halve that amount as a cash-for-keys offer.

Consider rents and move-in costs for similar apartments in your community. Would $2,700 cover first and last month’s rents plus security deposit? If so, that may be your starting figure, and could present a strong incentive for your renter to leave.

In early conversations, ascertain your renters’ needs. Could they be out in a week, or will they need longer? Would a higher cash offer incentivize an earlier departure?

You could consider a tiered offer with one amount for a 60-day move-out, another offer for a 30-day move-out, or a higher amount to move out in a couple weeks or less. Keep the conversation going over several days or weeks to allow both parties time to consider and address underlying concerns.

Contract Complete

On move-out day, once you’ve been handed the keys to the apartment and inspected it, have your tenant sign a final clause saying they have received the cash payment. If the payment was escrowed and distributed by the bank, be sure to get a record of that payment.

Before handing over or releasing the cash payment, be very sure to conduct that final inspection.

As a last step, it is recommended that you immediately change the locks, as usual with an apartment transition. Having the keys handed to you from the tenant doesn’t mean they didn’t at some point have copies made.

Thousands Saved

Cash for keys isn’t for everyone in every situation. It needs to be approached thoughtfully and thoroughly with all bases covered from a legal standpoint.

If you find yourself lamenting the pile of cash you just handed over to an undeserving tenant in exchange for keys to your property, consider revisiting your calculated eviction costs.

Focus on the potential thousands of dollars you just saved, and your freedom to now locate a better tenant.

Free Business And Real Estate Investing eBooks

Contact Winston Rowe and Associates

Welcome to Winston Rowe and Associates knowledge blog, scroll down to the right for posts about commercial real estate.

This is a list of free books about real estate investing, commercial real estate financing and business strategy.

We’re always on the lookout for great free books so bookmark this blog and check back for monthly updates.

These links are not affiliate marketing links, just publications that we feel may add value to people and businesses.

Commercial Real Estate Finance

The eBook Commercial Real Estate Finance, by Winston Rowe & Associates discusses the fundamentals of the different types of commercial property, the various options that are included with properties and the capabilities that you will have as a commercial property investor.

Real Estate Investing Articles

This is a link to 1226 real estate investing articles written by industry veteran’s.

25 Productivity Tips for Successful Business Owners

Productivity is critical to your success at work. Business owners, managers and executives all want to get the most from their employees. If you’re not performing as efficiently or effectively as others, your long-term job prospects could be in trouble.

Real Estate Investing: How to Find Cash Buyers and Motivated Sellers

“Real Estate Investing: How to Find Cash Buyers and Motivated Sellers” teaches real estate investors and those interested in learning to invest in real estate how to define and target ideal cash buyers and motivated sellers. The book covers absentee owners, rehab investors, Section 8 landlords, and other buyer types. Some of the marketing topics include mailing lists, postcards, both online and offline marketing strategies along with examples. Anyone who wants to wholesale a house or is curious about flipping houses should pick this book to get educated on cash buyers and motivated sellers for their real estate investing.

Real Estate – Breaking Bad How to Flip Decaying Real Estate Properties for Profit

Tired of working 9 to 5? You should think of making money with real estate! Yes, the effort is well worth it! You just have to ditch the misconceptions and embark with all the passion you have in store for this amazing trip of rehabbing old houses and giving them a new look and a new owner.  Your reward? A nice profit!

Real Estate Forms Portfolio

A FREE and ready-for-download eBook consisting of a comprehensive collection of real estate-related forms for real estate investors.

Real Estate Secrets Exposed

This FREE e-Book sheds some light on the often mysterious and sometimes daunting world of real estate.

Use 1031 Real Estate Exchanges to Create Multiple Streams of Income

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Make Money Through Real Estate Renovations

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Discover the Secrets of How to Fund Your Real Estate Deals with Private Lenders

Download this FREE e-Book, and discover the new secrets of funding real estate deals in the post-bubble real estate market, where traditional lending sources are getting very difficult to obtain. Download it today!

Real Estate Investing Strategy for Rehabs

This eBook is about residential rehabbing and the multiple strategies that can be used to maximize profits in this current economic climate. My goal has always been to share knowledge with folks that are truly interested in rehabbing and view it as not only for monetary gain but also see is as an “art and science” like I do. Happy Rehabbing!!

How to Be A Super Property Investor

A FREE, step-by-step guide that will help you become a super real estate property investor. Learn all the basic and some advanced investing techniques that have generated millions for property investors. Ready for download now!

Financial Terms Dictionary – 100 Most Popular Financial Terms Explained

This practical financial dictionary helps you understand and comprehend more than 100 common financial terms. It was written with an emphasis to quickly grasp the context without using jargon. Every terms is explained in detail with 600 words or more and includes also examples. It is based on common usage as practiced by financial professionals.

The Prince by Niccolò Machiavelli

Niccolò di Bernardo dei Machiavelli was an Italian diplomat, politician, historian, philosopher, writer, playwright and poet of the Renaissance period. He has often been called the father of modern political philosophy and political science.

The Science of Getting Rich by W. D. Wattles

This book is pragmatical, not philosophical; a practical manual, not a treatise upon theories. It is intended for the men and women whose most pressing need is for money; who wish to get rich first, and philosophize afterward. It is for those who have, so far, found neither the time, the means, nor the opportunity to go deeply into the study of metaphysics, but who want results and who are willing to take the conclusions of science as a basis for action, without going into all the processes by which those conclusions were reached.

Sun Tzu Art of War

Written in the fifth century B.C., Suntzu and Wutzu still remain the most celebrated works on war in the literature of China. While the chariot has gone, and weapons have changed, these ancient masters have held their own, since they deal chiefly with the fundamental principles of war, with the influence of politics and human nature on military operations; and they show in a most striking way how unchanging these principles are.

Make Extra Money Flipping Houses While On Vacation by Jason Medley

Reveals his simple and proven systems to automate, delegate and outsource nearly every function of his business except cashing his checks. He shows the exact steps that has allowed him to go on multiple vacations with his family throughout the year while having his system continue to flip houses for him.

Achieving Wealth Through Real Estate: A Definitive Guide To Controlling Your Own Financial Destiny Through a Successful Real Estate Business

Have you ever thought about making money with real estate? In Achieving Wealth Through Real Estate: A Definitive Guide to Controlling Your Own Financial Destiny Through a Successful Real Estate Business, author and entrepreneur Kirill Bensonoff takes you through the process of starting your own real estate business step-by-step, featuring his expert tips and tricks.

Business Loans Uncovered

Knowing if you qualify is one of the most important things to know when applying  for a loan of any type. Blindly applying for a loan and being declined increases the chances of you being declined again and again because you not only lower your credit score each time you apply, multiple inquires also serves a red flag to other lenders and as a result lenders put you in a high risk category and charge higher interest rates in the event of an approval Includes: ​Traditional Lenders, Government Sources, The 7(a) loan guarantee program, SBA Low Doc loan program, SBA Express loan program, Factoring, Venture Capitalists, Angel Investors.

50 Simple Secrets To Be A Happy Real Estate Investor

Discover the secrets used by successful real estate investors to create happiness in their lives and businesses. Naturally create more happiness for yourself by implementing time-tested secrets to happiness used by other real estate professional and investors just like you. Start to experience more productivity, satisfaction, and success immediately.

50 Simple Secrets To Be A Happy Real Estate Investor

Discover the secrets used by successful real estate investors to create happiness in their lives and businesses. Naturally create more happiness for yourself by implementing time-tested secrets to happiness used by other real estate professional and investors just like you. Start to experience more productivity, satisfaction, and success immediately.

Marketing Strategies for Real Estate Photography

One of the biggest problems that real estate photographers have once they have set up their business as a legal entity, obtained all the right equipment and perfected their technique is obtaining new clients.

Clients and customers are the lifeblood of any business, but how do you obtain new clients after starting your business?

By developing and executing a strategic marketing plan tailored to your business.

This short guide has been written to help real estate photographers develop their marketing plan and assist with winning new business.

It includes a series of digital and direct marketing strategies along with useful tips and lessons the author has learned from his own experiences that can save you time and money when growing your business.

A marketing action plan template has been included to help photographers execute the strategies learned in this guide book.

Books by Dr William Edward Deming

William Edwards Deming (October 14, 1900 – December 20, 1993) was an American engineer, statistician, professor, author, lecturer, and management consultant.

Educated initially as an electrical engineer and later specializing in mathematical physics, he helped develop the sampling techniques still used by the U.S. Department of the Census and the Bureau of Labor Statistics.

In his book The New Economics for Industry, Government, and Education Deming championed the work of Walter Shewhart, including statistical process control, operational definitions, and what Deming called the “Shewhart Cycle, which had evolved into Plan-Do-Study-Act (PDSA). That was in response to the growing popularity of PDCA, which Deming viewed as tampering with the meaning of Shewhart’s original work.

Deming is best known for his work in Japan after WWII, particularly his work with the leaders of Japanese industry. That work began in July and August 1950, in Tokyo and at the Hakone Convention Center, when Deming delivered speeches on what he called “Statistical Product Quality Administration”.

Many in Japan credit Deming as one of the inspirations for what has become known as the Japanese post-war economic miracle of 1950 to 1960, when Japan rose from the ashes of war on the road to becoming the second-largest economy in the world through processes partially influenced by the ideas Deming taught

Multifamily Investing Due Diligence Do’s and Don’ts

With historically high rents fueling the apartment market, sellers are once again demanding top dollar and buyers have become increasingly aggressive in their pursuit of available inventory. During this process, the prevalence of defective construction in the apartment industry over the past several decades should not be overlooked.

Amateurs and professionals alike have purchased properties that were economic disasters because they were fraught with undetected construction defects. As a consequence, conducting thorough “due diligence” investigations are essential in avoiding the substantial repair and maintenance costs that can result from latent construction defects.

Understanding Apartment Construction

As owners and operators know, apartments are hybrid commercial/residential projects that have a history of problems unique to their classification. Making sure that a buyer, or a buyer’s inspection company, understands these problems, and where and how they manifest in apartment construction, can make or break a due diligence investigation.

Even reputable commercial inspection companies focus their due diligence investigations on interior systems, such as mechanical and plumbing systems, and generic sources of water intrusion common to all construction (roofs and windows). It’s doubtful, however, that these inspectors will discern hidden points of water intrusion such as handrails, deck edges, and stair stringers. Thus, it’s important the investigator be aware of not only how and where water penetrates, but how evidence of that water penetration—even when hidden behind finish materials like concrete and stucco—manifests itself on the finished surfaces of the building.

Forensic investigators who provide support to attorneys can be an excellent resource for buyers, too, during the due diligence process. They can, for example, review a building’s architectural plans for common architectural details that can allow water intrusion. They can also walk a project and identify areas that have a high probability of leaking, without conducting destructive and costly testing. If destructive testing is necessary, the forensic investigator can perform the testing and provide estimates the buyer can then use in soliciting bids for the repair work. The investigator’s findings can also help the buyer evaluate the economics of the purchase and renegotiate the sale price, if desired.

Understanding the Construction Team

An apartment building’s original construction documents are commonly made available as part of the due diligence process and should contain design drawings, subcontracts, and prime contracts, at the very least. These files can answer many questions you, as a buyer, may have, including the following:

First, ask whether the builder built the property for the builder’s own profit. Some extremely reputable developers occasionally function as their own general contractors. This is a red flag that should trigger caution, because the economics of development can be in conflict with the time and cost requirements of contractors. When developers act as their own general contractors, there’s an increased probability that quality control will suffer for the sake of maintaining the development pro forma and schedule. This is particularly true if the developer didn’t “hold” the asset for a significant amount of time after it was built.

Second, ask about the design professionals who worked on the job. Different firms have different reputations. Some architectural firms are better at generating plans that are more subcontractor–user-friendly than other firms. If the plans are too complicated, it’s common for subcontractors to ignore them.

Third, ask about the subcontractors who were retained to perform the construction work. Among the major trades, such as framing, waterproofing, sheet metal, and lightweight concrete, how many of those subs are still in business? What was their reputation when they worked on the project?

Trade contractors tend to use the same means and methods on every project they work on, often despite the requirements of their contract documents. It would astound the common consumer to learn how frequently trade contractors ignore essential contract drawings and specifications. As a consequence, a builder’s habits tend to carry over from project to project, good and bad. Attorneys and inspectors who work with apartment owners in your region should know who they are.

Understanding the Maintenance History

Because purchase and sale agreements commonly have limited representations and warranties, buyers should seek to gain as much “actual knowledge” about the function of the project as possible. Maintenance records are often the most important records for ascertaining this information, yet they are commonly ignored.

Patterns in maintenance records can provide valuable insight into which, if any, of the building’s systems aren’t performing. For example, is there a history of complaints of water coming through door thresholds or windows? Are there particular units with multiple maintenance requests for mold abatement? Is there a correlation between maintenance requests in a particular place (such as on a certain floor, or facing one particular orientation)? The problem may lie not with the tenants but with the system itself.

Talk to the maintenance personnel. What do they think works well and not so well at the property? On one occasion, a client of ours was horrified to learn that a team of painters did nothing but caulk and paint siding, because of installation errors in the building envelope. The buyer never bothered interviewing any members of the maintenance staff, some of whom freely volunteered to lawyers in subsequent litigation that the project was referred to as the Golden Gate Bridge because the asset was perpetually being painted.

Understanding Claims Preservation

Besides the building, its construction team, and the maintenance staff, there are three important legal theories apartment buyers should be aware of prior to closing escrow on a property.

Ten-year defective-construction limit. There is an absolute bar against suing a builder for defective construction more than 10 years after the project was completed. As a consequence, when a purchaser fails to identify defective construction in older properties, there can be no recovery against the builder to help offset repair costs, making thorough and effective due diligence inspections all the more important.

Three-year potential claims limit. For projects less than 10 years old, claims for construction defects can nonetheless become time barred if not pursued within three years of when an owner knew or should have known that the defect existed. Moreover, when a buyer purchases a piece of real property, the buyer is charged with the knowledge of the prior owner. Thus, if a prior owner discovers or should have discovered defective workmanship, the statute-of-limitations period commences as to that owner and all future owners.

Limits of transference. The right to sue for defective construction is a personal property right that does not automatically transfer with the sale of the real property. To the contrary, if a seller is aware of defective construction prior to the close of escrow and does not specifically transfer the legal right to sue for that defective construction (through a document called an “assignment of choses in action”), the right remains the personal property of the seller, and the buyer will have no recourse against the builder.

By conducting a thorough review of the project file, maintenance materials, and any prior sales documents, an apartment buyer should be able to determine whether the seller discovered or should have discovered any defects at the property. However, as a matter of course, purchasers of property less than 10 years old should demand that assignments of choses of action be included in the closing documents.

Good due diligence requires patience, hard work, and professionals who possess the expertise to correctly advise their clients. A proper investigation yields a thorough understanding of the building’s construction and maintenance history as well as the available rights to be conveyed.

Multifamily and Apartment Refinance, Rehab or Acquisition Lending

Bridge, hard money or CMBS funding available for Multifamily, Apartment refinance, rehab or acquisition

When it comes to refinancing, rehabbing or acquiring multifamily and apartment properties, often times the difference between a good investment and a great investment is the cost of financing.

Winston Rowe & Associates understands this and that’s why they have developed a comprehensive mix of highly customized multifamily and apartment refinancing and acquisition programs to help maximize your return based on the individual needs and requirements of you and your apartment building investment.

Winston Rowe & Associates apartment and multifamily funding solutions are offered at competitive rates, so owners and investors can spend less on interest and fees and turn an even bigger profit from their investment in an apartment building or complex.

Apartment & Multifamily Financing Solutions:

No upfront or advance fees

Loans available nationwide

Loan amounts start at $250,000 – no upper limit.

Up to 30-year amortization

For purchases, refinances and cash-out

Quick closings with complete file

How To Buy And Finance Apartment Buildings

Apartment Building investing is the preferred investment strategy for those investors who want an additional source of monthly income along with slow but steady appreciation in the value of their portfolio.

Buying an apartment building is a long, sometimes complicated, process. It’s important for you to gather as much information as you can before you make the decision to buy.

Applying for a mortgage to finance an apartment building is not at all similar to applying for a home mortgage. Apartment complexes with four or more units are commercial properties, and loans for them have different underwriting rules.

Here’s how to make a great investment in an apartment building.

Verify the accuracy of your assumptions; it’s critical that you have a realistic idea of what the value is, and what the income and expenses will be, accuracy of the information is everything

Don’t trust any numbers you hear from the seller, the real estate agent or anyone else representing the seller, use a third party firm that specializes in conducting a professional due diligence investigation.

Winston Rowe & Associates provides this service with no upfront fees to their clients.

They will make sure you’re working with reliable data from the seller and their agents.

A professional due diligence investigation will get to the hard evidence from using business analysis metrics to find out what those numbers have been in the past and what they may be in the future.

The Metrics of Apartment Investing:

Gross Rent Multiplier (GRM):

Gross rent multiplier is a rough measure of the value of an investment property that is obtained by dividing the property’s sale price by its gross annual rental income. GRM is used in valuing commercial real estate.

Utilizing the GRM you can accurately determine the value of the commercial real estate prior to ordering an appraisal. Additionally, the GRM can also verify or discredit an existing appraisal.

Net Operating Income (NOI):

Net operating income (NOI) is used in the real estate market to determine the revenue that a property generates less operating expenses. NOI also determines a property’s capitalization rate, or rate of return.

Occupancy:

The occupancy rate is the number of units filled divided by the total number of units.  For instance, if there are 95 units occupied out of a 100-unit apartment complex the occupancy rate is 95%.

Vacancy:

Some investors prefer to use the vacancy rate instead of the occupancy rate.  The vacancy factor is just the reciprocal of the vacancy.  For instance, in the example above if there were 5 empty units out of a 100-unit apartment complex the vacancy factor would be 5%.

Absorption:

The absorption rate is the rate at which available apartment units are rented in a specific real estate market during a given time period. It is calculated by dividing the total number of available apartment units by the average number of sales per month. The figure shows how many months it will take to exhaust the supply of apartment units on the market.

Capital Expenditure (CapEx):

Capital expenditure, or CapEx, are funds used by a company to acquire or upgrade physical assets such as everything from repairing a roof to building, to purchasing a piece of equipment like water heaters, air conditioners, or new plumbing.

Cash Reserves:

This is very important to every potential lender; it’s the amount of cash that you set aside when running a business. A business that is not properly capitalized can fail in a very short period of time.

Internal Rate of Return (IRR):

Internal rate of return (IRR) is a metric used in capital budgeting measuring the profitability of potential investments. Internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

Loan-to-Value (LTV):

Loan-to-value ratio (LTV ratio) is a lending risk assessment ratio that financial institutions and others lenders examine before approving a mortgage. Typically, assessments with high LTV ratios are generally seen as higher risk and, therefore, if the mortgage is approved, the loan generally costs the borrower more to borrow.

Debt Service Coverage (DSC):

The formula for DSC is Net Operating Income divided by the total debt service.

Typically, lenders want to see at least a 1.10 DSC.  This means that for every $1.00 of debt service, the property is producing $1.10 of cash-flow to service that debt.

Capitalization Rates (Cap Rate):

The capitalization rate is the rate of return on a real estate investment property based on the income that the property is expected to generate. The capitalization rate is used to estimate the investor’s potential return on his or her investment.

Even though this metric is simple, most real estate brokers manipulate this number (usually by using forecasted income numbers rather than the actual numbers).  Always take a stated cap-rate with a grain of salt and do your own math.

Due Diligence Review & Investigation:

Winston Rowe & Associates commercial real estate due diligence services range from initial deal review for accurate and reliable analysis to help support your important real estate decisions, then presentation and placement to their extensive network of capital sources.

Without the usual upfront or advance fees that are typical in the industry.

Whether you are looking to finance a small apartment building, a complex with hundreds of units, or a co-operative looking for an underlying mortgage, Winston Rowe & Associates can help you find the optimal financing solution to meet your individual needs.