How to Price Your Rental in a Small, Secondary Market

The time-honored mantra of real estate – “location, location, location” – drives everything from a property’s purchase price to the rental rate. It can even dictate how much or little you should invest in improvements.

Real estate markets are classified by location type. There are primary, secondary, and tertiary markets, sometimes called Tier I, Tier I, and Tier III. The market classification for your rental property will be a crucial consideration as you set its rental rate.

An area’s population and state of real estate market development determine its classification as a primary, secondary, or tertiary market.

Primary Markets

Primary, Tier I markets are typically larger cities of 5 million people or more, with well-established rental markets. Examples include Chicago, New York City, Boston, San Francisco, Los Angeles, Washington, D.C., and Dallas-Fort Worth.

These large metro areas are usually more expensive than other metro areas – for both buyers and renters – due to consistent demand for housing.

Secondary Markets

Growing cities are considered secondary markets; their growth creates demand as new people move into the area, supporting new business development and job creation.

These Tier 2 locations demonstrate more real estate market flux, creating attractive opportunities for real estate investors.

Secondary markets tend to be a population of 2 to 5 million people. They are usually less expensive than primary markets but still in demand. Examples include Philadelphia, San Antonio, Phoenix, San Diego, and San Jose.

Tertiary Markets

Tertiary markets involve a lower population density of fewer than 2 million people. The population is spread out across a bigger geographic area.

There is typically less reliable job growth. In a strong economy, tertiary markets can provide attractive investment opportunities as property prices are typically lower.

These areas may be more expensive to develop as many are rural or outside of secondary market cities.

But can be prime markets for real estate investors as the properties cost less.

Whether you invest in a secondary market, tertiary, or primary market, it is essential to consider market-relevant data to price your rental correctly.

The key to pricing rentals in a primary vs. secondary market

The whole real estate cycle – from the purchase price to rental rate and eventual selling price relies on intelligence gleaned from current, comparable sales data for properties in the same price range.

When you review these comparables, you will get a good sense of amenities and the property improvements for other properties in the price range. As you determine your target rental rate, the purchase price is one factor but not the whole story.

You may be able to invest a small amount in fixing up the property, add or improve its amenities, and charge a higher rental rate than similar unimproved properties sold in the past year.

How you need to look at properties in secondary and primary markets differently.

Demand for rental property is always a local story. You can’t take an apartment in New York City and compare it to a similar apartment in Des Moines. Even if both cities are the largest in their respective states, large is relative –Des Moines has a population of 210,000, and New York City’s population is 8.175 million.

Even within Iowa and New York, you have the full range of markets to consider. So how do you determine the rent?

In real estate, comparing neighborhood properties wins out.

While you need to be aware of overall rates in the city where you plan to buy, your rental rate should be based on going rates in the immediate neighborhood. Each neighborhood will have a range that extends across unimproved and improved properties.

High-demand primary markets are top dogs because they have low turnover and can command higher rents. Secondary markets can present many growth opportunities. You can still improve a property in a secondary market to make it more attractive to tenants.

This will also allow you to raise rents accordingly. Tertiary markets also offer good opportunities, especially when the primary and secondary market values seem overblown.

Comparing apples to apples

In any market, you want to rely on current, accurate information to complete your analysis. Rentometer pulls rental rates from all online sources for current listings to provide you with accurate rental rates for any area. You can search within any state, city, or neighborhood to get the most up-to-date picture of rental rates.

Let’s compare rates for 2-bedroom, 1 1/2 bath rental units in Des Moines. The city’s average rent for this property type is $1,186 per month, but rates range from $943 to as high as $1,429. This range tells you that the right purchase price and a few property improvements could create a nice cash flow.

Comparing similar properties in a secondary market

Going a bit deeper, let’s compare three different neighborhoods in Des Moines: Downtown Des Moines, Bloomfield-Allen, and Merle Hay. Downtown has the highest average rents at $1,482 per month, while Bloomfield-Allen and Merle Hay show average rents of $890 and $891. Looking more closely at each area, you’ll find that Downtown has an entirely different culture and amenities from both the Merle Hay and Bloomfield-Allen neighborhoods. And while the two other neighborhoods are similarly priced, they have different amenities, culture, and crime levels.

Guide to Buying a Duplex: Pros & Cons of Duplex Ownership

Searching for a home, especially your first, is one of the most exciting pursuits of your life. You’ve got financial freedom and you’re ready to use it to get a place all your own! And while you might be eager to ditch the shared walls of an apartment complex, don’t rule out buying into the shared walls of a duplex. There are plenty of reasons why purchasing a duplex could be the right choice for you. Let’s take a look.

Duplexes are very popular in the U.S. The National Multifamily Housing Council claims that about 1 in 5 households currently live in a duplex. Although they may not have been on your radar while shopping for homes, owner-occupied duplexes can be a wise investment. Similar to a single family home, duplexes are essentially two homes that share a wall with another home.

How does a duplex work?

Each home in a duplex can be either independently owned or by one entity. These owner-occupied duplexes can be split if the owner wishes to sell one or both. But what makes them so attractive is that duplexes — when one side is rented out — can help to generate income and pay down half the mortgage at the same time.

Is a Duplex a Good Investment for First-Time Homeowners?

To many, the prospect of renting out one half of a duplex is considered a good option. As far as starter homes go, it can also be a sound financial decision, too. If you’re thinking about buying a duplex as a first-time home buyer, it’s important to weigh your options and your long-term goals before making the call.

Buying a duplex and renting half out to a tenant is a big responsibility. You’ll be legally responsible for keeping the unit in a habitable state. And if something should go wrong with the HVAC or the water heater, you’ll need to be able to react — both physically and financially — to make repairs and line up service personnel if you can’t. Another consideration when buying a duplex as a first home is to be sure you’ve got the financial reserves in place to pay for the rental’s mortgage in case the tenant doesn’t work out. You may have trouble replacing the tenant if they unexpectedly move out.

Owning a Duplex: Pros and Cons

Buying a duplex and living in one half while renting out the other seems like a smart idea — and it can be a very good investment! However, like all investments, there are always some negatives to take into account. Let’s explore the pros and cons of having an owner-occupied duplex and see if it’s the right fit for you.

Pros of owning a duplex

One of the biggest reasons most people consider buying a duplex when they’re searching for their first home is the investment opportunity. Check out why it’s a good financial move to invest and live in a duplex.

Income on your property. With a tenant contributing to half of your monthly mortgage, you’ll be poised to build savings.

Renting your duplex could help you during the loan process. When you plan on renting out one side of a duplex, you may be able to factor that into your income and qualify for a larger home loan. Talk to your mortgage officer for specific details.

Your tenants help pay your mortgage. When you’re living in one side of the duplex and renting out the other, you’re taking a big chunk out of your mortgage payment every month. When you compare your reduced mortgage payment to what you’d be paying if you purchased a single-family home, duplex living seems like a no-brainer.

Tax benefits. Not only do you get your standard deductions for being a homeowner, but you can also deduct the expenses you incur while renting and maintaining your rental unit. Selling an owner-occupied duplex may also give you some exclusions from capital gains taxes since it’s treated as two properties.

Talk to your tax professional for more specific advice, but since your duplex is producing income, it’s technically a business — and that means you’ll have some opportunities for tax benefits that you wouldn’t have if you’d picked a single-family home.

Beginning of a real estate portfolio. A duplex is a great stepping stone for anyone looking to invest in real estate. While you live in half, you can pay down your mortgage. Then, when you move out, you can rent out both sides — doubling your rental income.

Rent goes up. In general, rent goes up over time, but a fixed, 30-year mortgage stays the same. So while your mortgage payments don’t change, you can charge more for rent, adding to your income over the years.

Close to your tenants. There’s nothing like living next door to your tenants for property checks and maintenance issues.

Cons of owning a duplex

If the income portion of owning and renting a duplex sounds good to you — great! But don’t let that drive your entire decision. There are plenty of other work, social and risk factors to consider before you jump into the rental game. Check them out:

Twice the expenses. There are many financial benefits to a duplex but some of the expenses double — maintenance is one of the biggest considerations. Make sure you do the math at the outset to see how your finances line up.

Tenants have expectations. When your tenants are next door, they may expect you to deal with any issue they encounter immediately.

The landlord business. Once you rent out the other half, you become a landlord. Whether you love being a landlord or could leave it, it’s a business and needs special attention. Some mortgages require you live in your half for a year. Are you able to commit to staying put for a year? Or do you need more flexibility?

Location limitations. Your region may have zoning limits on where multiple family units can be located, which could restrict your location options.

Handling an empty unit. If the other side of your duplex doesn’t have a renter, you need to be prepared to advertise, show the unit, maintain it and handle months of no rent payments. Make sure you’re able to devote as much time as necessary to keep the unit in good shape and get it occupied.

Sharing walls. If you had your heart set on privacy that your old apartment couldn’t offer, you might not love the fact that your unit will share at least one wall, ceiling or floor with your neighbors. Be prepared for the occasional noises, especially if your tenant likes to entertain.

Respecting shared property. You’ll probably be sharing a driveway, a lawn or other parts of your property with your tenants. Making sure that you’re both respecting the shared property and cleaning up after yourselves is an important part of creating a healthy tenant and landlord relationship.

Renting Out An Owner-Occupied Duplex

Buying a duplex to live in can be appealing. And joining the ranks of the hundreds of thousands in duplex ownership is a great way to have a go at being a landlord for the first time. Unfortunately, buying and renting out a duplex isn’t a “set it and forget it” kind of investment. Before you ever show the unit to a prospective renter or hold an open house, you’ll need to brush up on some landlord basics. Here are some tips for learning to become a duplex landlord:

Research rent prices in your city, town or neighborhood. Setting a fair rental price is a major key to getting renters and keeping your other unit occupied. Look for similar units and compare and contrast the features, prices and location to yours.

Check out local rental and landlord laws. Depending on the location of your duplex, you’ll have different rules and regulations to abide by. Your tenant’s rights will depend on your location, too. These laws will cover things like security deposits, what you’re required to disclose about the unit to potential renters and more.

Prepare for repairs. If you don’t fancy yourself a handy person, ask around and search online for a reputable maintenance person in the area. You’ll be doing yourself and your tenants a favor by making sure you’ve got someone trustworthy to handle the unexpected maintenance issues that come with renting.

Don’t expect regular, on-time payments. It’s a tough pill to swallow, but as a landlord, you won’t always be paid promptly by your tenants. That’s why you should work to build a strong rapport with whomever is living on the other side of the duplex. Give your tenants the respect and honesty you’d expect to get, and you’ll be better off — both financially and personally — in the long run.

Learn about the required insurance

Get in touch with an American Family Insurance agent to get the coverage and peace of mind you deserve. Here are the policies you should consider:

Homeowners insurance. One last consideration when buying a duplex is your homeowners insurance. In most situations, if you have an owner occupied duplex, you can insure both sides through a traditional homeowner’s policy.

Business insurance. But, if you decide to move and rent both units you may need to look into business insurance. Your American Family Insurance agent will be happy to navigate these policy options with you so you can find the best option for your unique situation.

Landlord insurance. While you handle the day-to-day of managing your rental unit, you also want to make sure you’ve got landlord insurance that protects you from the surprises that come with the job.

The next steps to purchasing a duplex

Once you’ve made the decision to purchase a duplex, you’ll need to make preparations for the purchase in much the same way that you would if you were buying a home for the first time. As you’re considering how to buy a duplex, you’ll need to apply for a mortgage and figure out how much cash you can put towards a down payment.

Frequently Asked Questions

How can I buy a duplex with no money down?

You’ve got a few options if you’re looking to purchase a duplex with no money down. In addition to working out a lease-to-own arrangement with the current duplex owner, you could join forces with a financial investor who’s willing to partner with you on the deal.

How can I buy a duplex with bad credit?

In order to qualify for financing, you’ll need a minimum FICO credit score around 580 – 620. With that, you may qualify for an FHA loan to buy the duplex.

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.

Six Trends to Watch for in Multifamily Property Management in 2021

Pandemic creates opportunities to rethink how best to serve residents.

2020 has presented the multifamily industry with unparalleled challenges due to the pandemic with the secondary and tertiary effects forcing the industry to quickly pivot to meet resident and prospect needs. However, the pandemic has also created opportunities for multifamily owners to creatively rethink resident retention strategies and communication and how to demonstrate value. While some external factors will remain uncertain as we transition into 2021, here are six trends we expect for the future of the multifamily industry:

1. Service Will Be a Secret Weapon

Next year, enhanced customer service will become the most critical component for demonstrating value and increasing resident satisfaction across multifamily communities. While efficiency and timely communication remain two essential strategies for solid customer service, expectations are on the rise as more residents work from home. Although some prospects and residents may continue to request face-to-face (albeit socially distanced) interaction, we foresee most leaning into digital communication via smartphone apps, emails, or text alerts for updates and ongoing communication with on-site teams. For multifamily operators, that means expanding your digital resources and increasing the frequency of communication in 2021.

This also means accelerating response times and prioritizing maintenance requests since many residents are still working from home and spending ample time in their living space. It’s important for on-site teams to prioritize quickly and efficiently, especially as the volume of requests increases and residents expect almost real time responses. What was once a minor maintenance issue can now quickly escalate into an unsatisfied and angry customer as residents are experiencing the maintenance issue for more hours of the day. As we continue into 2021, on-site teams will have to provide an enhanced experience by quickly managing requests, clearly communicating all updates, and going the extra mile to offer the best possible management experience.

2. Prioritize the Retention of Top Qualified Talent

Employing a highly skilled property management and maintenance staff is paramount to resident satisfaction and successful day-to-day operations. However, finding and retaining top talent will remain a challenge in 2021 for several reasons. Multifamily is a highly competitive and growing industry with a surplus of opportunity. We’re now seeing an excessive demand for experienced, trained personnel, but a labor shortage of qualified candidates entering the market. 2021 will continue to expose the need for more highly skilled and passionate staff members. The companies that succeed in attracting top talent do so by offering competitive salary packages; providing training, education, and support; and continually looking for creative ways to “surprise and delight” employees. Example perks could always include an appreciation day for the teams, flexible work hours, or an unexpected day off. Onboarding a professional, qualified, and capable team translates to resident satisfaction and long-term resident retention.

3. Looming Economic Uncertainty Clouds the Industry

Although this year brought economic uncertainty with changes in income and employment status, rent delinquency for multifamily hasn’t been as significant as anticipated. Research conducted by the National Multifamily Housing Council reflects a 1.1% increase in overall delinquency in September 2020 versus the prior year, with a 4.8% decrease in on-time payments. We’ve had a similar experience at Fogelman. Rent collections have outperformed expectations during the early part of the pandemic; however, we recognize that many are still struggling financially, which might impact future collections.

It’s difficult to predict what delinquency will look like in 2021 since it’s dependent on employment recovery and what stimulus is available to help struggling renters pay their rent. Along with the rest of the industry, we’ll be monitoring economic conditions as we head into the new year.

4. Getting Creative with Resident Connection

Striking the balance between resident interaction and safety precautions will continue to be a challenge for multifamily teams in 2021. Residents may want to resume “normal” social connection and activities with the coming winter months, but the ongoing pandemic will challenge property management teams to rethink social events and connectivity. Though we’ve seen a lot of virtual happy hours, drive-by celebrations, and Zoom classes, it’s the teams that leverage creative programming to bring people together online that will have the most success in 2021. For safe, socially distanced resident activities next year, we expect to see more virtual scavenger hunts and trivia, virtual cooking and mixology classes, and community visits from local favorite food trucks.

5. Adapting to the Evolving Needs of Residents

We understand residents are using their living spaces differently in the wake of increased remote working. Apartment units have become a place of work and leisure, and there are no signs of that changing anytime soon. Some major companies, such as Google, Target, Salesforce, and Facebook, are delaying the return to a traditional office environment until summer 2021, and a handful of companies, like Microsoft and Twitter, are transitioning to a permanent remote status.

In 2021, management companies will need to continue adjusting their offerings to meet resident needs in the short and long term. Whether that’s providing better high-speed internet packages, creating socially distant co-working spaces, offering reservation-based conference rooms, or establishing wellness-focused areas like outdoor green spaces and trails. Those that adapt the fastest and implement feedback from their residents will be most successful in strengthening resident retention and satisfaction.

6. Go Digital, Stay Connected

Because of the pandemic, we’ll continue to see less physical interaction with residents, causing a greater demand for information and the frequency at which it’s delivered across online platforms. As mentioned earlier, digital communication tools like apps, emails, and texts are the industry standard and mainstay for properties in 2021. Another must-have for convenience is a web portal that allows residents to make payments, submit maintenance requests, and view discussion boards or upcoming events. For prospects, offering self-guided and virtual property tours will be an important, safer option. Overall success in 2021 requires that digital tools provide both convenience and ease of fast, frequent communication to help us meet our residents and potential residents right where they are—online.

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.

Loan Agreements: Everything You Need to Know

Winston Rowe & Associates

A loan agreement is a very complex document that can protect the two parties involved. In most cases the lender creates the loan agreement, which means the burden of including all of the terms for the agreement falls on the lending party.

Unless you have created loan agreements before, you will likely want to make sure that you completely understand all of the components so you do not leave out anything that can protect you during the lifetime of the loan.

This guide can help you create a solid loan agreement and understand more about the mechanics behind it.

Why You Need a Loan Agreement

Before you lend anyone any money or provide services without payment, it is important to know if you need to have a loan agreement in place to protect you.

You never really want to loan out any money, goods, or services without having a loan agreement in place to ensure that you will be repaid or that you can take legal action in order to have your money recouped.

The purpose of a loan agreement is to detail what is being loaned and when the borrower has to pay it back as well as how. The loan agreement has specific terms that detail exactly what is given and what is expected in return.

Once it has been executed, it is essentially a promise to pay from the lender to the borrower.

Borrowing money is a big commitment no matter the amount, which is why it is important to protect both parties with a loan agreement in place. A loan agreement not only details the terms of the loan, but it also serves as proof that the money, goods, or services were not a gift to the borrower.

That is important because it prevents someone from trying to get out of repayment by claiming this, but it can also help you ensure that it is not an issue with the IRS later.

Even if you think you may not need a loan agreement with a friend or family member, it is always a good idea to have this in place just to make sure there are no issues or disagreements over the terms later that could ruin a valuable relationship.

If you are trying to determine whether you need a loan agreement, it is always better to be on the safe side and have one drafted.

If it is a large sum of money that will be repaid to you, as agreed upon by both parties, then taking the extra steps to ensure that the repayment takes place is well worth your time.

A loan agreement is designed to protect you so when in doubt, create a loan agreement and make sure you are protected no matter what happens.

There are several components of a loan agreement that you will need to include in order to make it enforceable. These are a few of those components that are true no matter what type of loan agreement it is.

To help explain how a loan agreement is broken down, we have divided it into sections that are easier to comprehend.

The Basic Information Needed

With every loan agreement, you need to have some basic information that is used to identify the parties that are agreeing to the terms.

You will have a section that details who the borrower is and who the lender is. In the borrower’s section, you will need to include all of the borrower’s information.

If they are an individual, this includes their full legal name. If they are not an individual but a business, you will need to include the business or entity designation, which must include “LLC” or “Inc.” in the name in order to provide detailed information.

You will also need to include their full address. If there is more than one borrower, you should include the information of both on the loan agreement.

The lender, sometimes also called the holder, is the person or business that will be providing the goods, money, or services to the borrower once the agreement has been agreed to and signed.

Just like you included the borrower’s information, you will need to include the lender’s information with just as much detail.

Additionally, you will need to include a section that details any guarantor information, if you have one. A guarantor is also known as a cosigner.

This individual or business agrees to pay back the loan in the case that the borrower defaults. You can add more than one guarantor to the loan agreement, but they must agree to all terms set forth in the loan just like the borrower.

Just like you included the borrower’s information, you will need to include the information of each guarantor, and they must sign the agreement. You will need to include their full legal name as well as their full address.

If you do not include a guarantor, you will not need to include this section as part of the loan agreement. Lastly, you will need to include a section that includes the date and location of the signing of the agreement.

In this section of the loan agreement, you will need to include various information such as the date the agreement is effective, the state where any legal proceedings are required to take place, and the specific county within that state.

This is important because it details when the loan agreement is active and will prevent you from having to travel to another place if there are any disputes or nonpayment on the agreement.

The Specific Loan Details

Once you have the information about the people involved in the loan agreement, you will need to outline the specifics surrounding the loan including the transaction information, payment information, and interest information.

In the transaction section, you will detail the exact amount that will be owed to the lender once the agreement has been executed. The amount will not include any interest that will accrue during the lifetime of the loan.

You will also detail what the borrower is getting in return for this sum of money that they are promising to pay to the lender. In the payment section, you will detail how the loan amount will be repaid, the frequency of the payments (e.g. monthly payments, due on demand, one lump sum, etc.), and information on the acceptable payment methods (e.g. cash, credit card, money order, wire transfer, debit payments, etc.). You will need to include exactly what you will accept as a form of payment so there is no question on the forms of payment allowed.

In the interest section, you will include information for any interest. If you are not charging interest, then you will not need to include this section.

However, if you are, you will need to detail the date when the interest on the loan will begin to accrue and whether the interest will be simple or compound in nature.

Simple interest is calculated on the unpaid principal amount while compound interest is calculated on the unpaid principal and any interest that is unpaid.

Another aspect of interest you will need to detail is if you will have a fixed or variable rate of interest.

A fixed rate interest loan means that the interest rate will stay the same during the lifetime of the loan, whereas a variable rate loan means that the interest rate can change over time based on certain factors or events.

You may also want to include information about prepayment in case the borrower is interested in paying the loan off early. Many borrowers are concerned about prepayment and you would be wise to include a clause in your loan agreement that talks about prepayment options, if any.

If you are allowing prepayment, you will need to include this information and detail if they are allowed to prepay the entire amount or only a partial amount, and if you will be requiring a prepayment fee if they choose to do so. If you are requiring a prepayment fee, you will need to detail how much that will be.

Traditionally, lenders require that a percentage of the principal is paid early before they can pay the remaining balance. If you are not allowing prepayment, then you will need to detail that it is not allowed unless written permission is provided by you, the lender.

Securing the Loan and Dealing with a Violation

You have the option of requiring collateral in exchange for your loan. If you wish to do this, then you need to make sure you include sections that address this.

For collateral, if you are requiring it to secure the loan, you will need to have a specific section. Collateral would be an asset that is used as a guarantee of repayment.

Examples of assets that can be used include real estate, vehicles, or other valuable goods. If you are requiring collateral, you will need to identify all collateral that is needed to secure the agreement. Another section you need for this is one regarding the security agreement. If you are not requiring collateral, then you can omit this from your loan agreement.

Signing Date

In regard to the collateral, if each party is signing a separate security agreement for it, then you will need to include the date that the security agreement is signed, or will be signed, by each party.

No one ever thinks that the loan agreement they have will be violated, but if you want to make sure that you can deal with the matter in case the terms are not followed, then you need to have something addressing it.

This is just one reason why it is so important to include this section no matter what. Typically, lenders include a personal recourse provision. This will allow the lender to seek recovery from the personal assets of the borrower if they violate the agreement.

Additionally, you should include the number of days that the borrower has to remedy any breach of the agreement.

If you include this, you cannot provide notice of recuperation until this time frame has passed. It does not, however, prevent you from reaching out to them for an update. The notice period that is standard is 30 days, but you can adjust this as you see fit.

Make sure you include all of these details in this section so there is no question about the actions you should be taking in case you are not paid back by the borrower.

Additional Items

In addition to the main sections detailed above, you have the option of adding additional sections to address specific items as well as a section to make the validity of the document unquestionable.

Every loan agreement is different, so use the additional terms and conditions section of the agreement to include any additional terms or conditions that have not yet been covered. In this section, you will need to include complete sentences and ensure that you do not counteract anything that has previously been put in the loan agreement unless you are stating that a specific section is not applicable to this specific loan agreement.

When executing your loan agreement, you may be interested in having a notary notarize it once all parties have signed, or you may want to include witnesses. The benefit of including a notary is that this will help prove the validity of the document in case it is ever disputed. Having a witness is an alternative to having the document notarized in case you do not have access to a notary; however, if possible, you should always try to include both.

 

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

Discover how to use 1031 tax-free exchanges, tenants in common interests, and zero cash flow properties to create new sources of income. Learn how to offer bundled services and attract new clients. This FREE, ready for download eBook is perfect for anyone involved in real estate, taxes, mortgages, insurance, or law.  Download it now!

Make Money Through Real Estate Renovations

Download this FREE eBook and learn how a successful investor makes thousands of dollars from real estate renovations. Download it now!

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

3 Common Myths Around Online Rent Collection

Tenant Rent Collection Strategies

Myth 1 – It’s Complicated

Sure, you’ve been doing it by hand for years, and despite all the time, effort, and headaches, it eventually gets the job done.  We get it.  But did you know, online rent collection software is easy to set up and flexible enough to support your current business processes?

Just think how amazing your life could be if you could instantly reduce the monthly stress of collecting rent. No more texts, calls, or emails chasing after rent. Technology does it for you… automatically… for every tenant… every month.

Whether you manage your properties by yourself or with a team, online rent collection automates invoice creation, rent reminders, payment collection, and direct deposits. No need for excess reporting or tasks to CYA.

Are you still having to track down tenants after the fact to collect late fees? If your tenants are late paying rent, rent collection software will automatically calculate the late fee, add it to their invoice and send continuous reminders until rent is paid or you decide other action is necessary.

Support When You Need It

Most online rental management solutions have support teams ready to help you and your team during the transition. In some cases, these support teams can even help your tenants set up the software so you can focus on your work instead of playing the role of customer service.

When searching for the best solution, we recommend checking out their website, make a list of questions and schedule a demo. Once you’re on a call, you’ll be able to share your specific needs and challenges to ensure you’re choosing the best online rent collection solution for your business.

Myth 2 – My Tenants Don’t Use Technology

A common misconception is that tenants don’t have access to technology or worse yet, don’t have an email address.  Did you know that according to a recent 2019 study, 96% of Americans own a cellphone and over 70% of Americans use some form of social media?

To pay rent online all a tenant needs is an internet connection and an email address.  If they use a smartphone and log into Facebook, Twitter, Snapchat, LinkedIn, or any other form of social media (and there are lots out there) they have an email address.

Technology isn’t Scary When you Communicate

Introducing change can sometimes seem scary, especially if you’ve been doing the same thing for a while.  However, when we communicated that we were switching to an online payment option, we found that our tenants were not only relieved, but grateful to finally have a more convenient way to pay rent.

These days, people are used to the convenience of digital payment methods for everything like paying credit cards, car loans, utilities, online shopping and student loans.

Why not add rent to the list? Once we introduced online payments, not only did our late payments decrease, but 30% paid before rent was even due.   With the ease of automated email and text rent reminders, it takes less than one minute to pay rent.  Making things more convenient for your tenants is a benefit to them and a benefit to you. We call that a win-win.

Myth 3 – My Tenants Don’t Have Bank Accounts

Just because your tenants pay you in cash or money order doesn’t mean they don’t have a bank account. According to a 2017 FDIC survey, 94% of Americans have bank accounts yet only 40% actually write checks.  Because of debit cards and ATM’s, fewer people own checks.

Before offering an online rent payment option, our tenants had to make a special trip to the bank to get a money order, or worse, because rent was more than $500, they had to make multiple trips to the ATM to get cash.  We never realized what a hassle it was for our tenants to pay rent.

With online rent collection you give them the option to use the free digital check service or pay with a debit/credit card (for a small fee), all from the comfort of their home.  No more trips, no more hassle.

What About Credit/Debit Card Fees?

Many rental management solutions offer the ability to process credit or debit card transactions with no cost for you. Tenants pay the transaction fee along with their rent payment. And although it’s an extra cost, often it’s less than a late fee.

It’s Expensive

There are many solutions available that you can quickly work into your budget without breaking the bank. And with the amount of time you’ll save using an online solution, you’ll more than cover the cost in free time…and as everyone knows, time is money.

Your time is valuable and equates to real dollars. That’s why an online rent collection software is designed to not only save you headaches, but also help you streamline processes, which saves time and money across your operations.

 

Choosing a Commercial Property Management Firm

Choosing a Commercial Property Management Firm

In today’s complex real estate markets, selecting the right commercial property management firm is one of the most important decisions investors can make. Trained, experienced, and creative real estate managers can obtain the maximum return on an asset by improving cash flow, retaining tenants, and increasing value. With more than 10,000 property management firms in the United States, investors are often at a loss about how to select one that will meet their personal investment objectives.

Frequently, investors seek advice on property management firms from commercial brokers who represent them in transactions. Recommending a qualified real estate manager may be part of your contract with a client or an added service that is especially helpful to out-of-state or foreign investors who are not familiar with property managers in your area.

Whoever you recommend naturally will reflect back on you, ideally enhancing your clients’ perception of you. Although you are probably familiar with the basics of property management, this may be a good time to acquaint yourself with the process of evaluating real estate property managers. It may be particularly timely if you are thinking of putting your own property in the hands of a qualified professional-a decision that may lead to more-profitable use of your time. Whether you’re lining up a firm to recommend to a client or seeking the services yourself, these guidelines will help you find the right fit between property and management service.

What to Look For

For the perfect fit, a management company’s expertise should match an investor’s needs. Is the real estate investment an office, an industrial building, a multifamily housing complex, or a suburban strip center? Does the building have a vacancy problem, a maintenance problem, or a marketing problem?

Investigate the experience of a firm by asking what other properties like yours (or your client’s) it manages, how long it has managed the properties, and what have been the results of its management.

Find out the type of investors with whom the property management firm usually deals. Does it manage for individual investors or does it specialize in working with institutional investors? The firm you are considering must have expertise in serving your type of investor as well as your type of property, because the reporting requirements of each investor type will be different.

Reputation Counts

A good company will have positive word-of-mouth in the industry, so ask around and determine a firm’s standing in the business community. It should have a solid reputation for providing professional management services, as well as for integrity and honesty.

Though the number of years in the business is not necessarily a determinant of professionalism, it does reflect experience and longevity. However, do not assume the best service always comes with age: a company new on the scene may make up for lack of experience through aggressive management or thorough attention to detail.

Organizational stability is a related matter. How long have individual members been with the firm? Do you deal with the same manager or group of managers who bring continuity to the property, or is there considerable staff turnover? Lack of stability could signify poor company management or lack of financial stability; whatever the cause, you want consistent service and familiar faces that tenants recognize and get to know, so rapid staff turnover should raise a warning flag.

Look for Accreditation

As in other areas of real estate, a property management firm that is accredited is set apart from other firms as having met higher standards. Some CCIMs specialize in property management and many of them may also have specialized designations such as Certified Property Manager (CPM), Real Property Administrator (RPA), and Certified Shopping Center Manager (CSM). The Institute of Real Estate Management (IREM) awards the Accredited Management Organization (AMO) designation to firms that meet its criteria.

Look for a firm with accredited staff and leadership. These members must meet stringent education and experience requirements in fiscal and operational management.

Of course, firms whose employees hold other, related designations of expertise are likely to have a broader, deeper understanding of the many aspects of managing investment real estate. The property management company with whom you work should be experienced and flexible; knowledgeable about accounting, architecture, leasing, sales, law, appraisal, marketing and maintenance; and honest and forthright in dealing with clients, tenants, and their own employees. Ask about the workload of the manager who will be assigned to your account. You should know how often the manager will make site visits.

Check Insurance

Inquire about a firm’s insurance coverage and make sure that the management staff is familiar with loss prevention and risk management programs. Make sure the firm has a fidelity bond to protect against the loss of money or property through the fraudulent or dishonest acts of employees. It must also carry depositor’s forgery-and-alterations insurance to protect against loss due to forgery or alteration of checks, drafts, and promissory notes. A firm also should adhere to requirements for professional liability insurance.

Finally, avoid property management firms with conflicts of interest that may prevent you or your client from getting the most value. Ask the firm to disclose any companies that it may own or use exclusively, such as landscaping or maintenance firms. Where there is potential conflict, make sure the management firm employs competitive bidding procedures and is willing to provide evidence of this. The firm should make every effort to take full advantage of discounts, purchasing opportunities, and other ethical means at its disposal when purchasing or contracting for supplies and services on behalf of the client.

What Services to Expect

Property management firms can provide a broad array or a limited number of services, depending upon a client’s needs. Do not assume that a certain service is provided automatically by the firm. Ask what specific services it will provide and, once you or your client decides on a firm, work out a comprehensive written management agreement with the firm. The agreement will outline services the firm will provide, letting the owner know exactly what to expect from the property management firm and what the services will cost.

Commercial property management firms typically provide the following services.

Management Planning. A commercial management company can analyze the business environment and the specific property within that environment, set out a marketing strategy, and recommend how a client’s objectives can best be fulfilled.

Financial Reporting. Record keeping and financial reporting are key services provided by management firms. Ask to see samples of the firm’s reporting documents.

Budgeting. The management firm develops and monitors the property’s budget, which covers everything from maintenance to marketing, personnel to operations. As the year unfolds, the manager should inform the owner of any necessary budgetary adjustments and explain why they are needed.

Maintenance Programs. Commercial property management firms provide monthly maintenance cost monitoring and the development and implementation of preventative maintenance programs.

Market Rent Analysis. Management firms will provide an analysis of market rents and those of the competition, changes in area demographics, and anticipated absorption levels.

Marketing Programs. Firms can develop and implement marketing programs that improve the image of properties and ensure successful leasing. A comprehensive program may include such essential marketing tools as brochures, advertisements, special events, property newsletters, videos, maps, and site signs.

Rent Collection. The collection of rent, including a daily record of deposits, is a basic service provided by management firms. A cash management system, which includes investment returns on rental dollars collected, should also be implemented.

Lease Negotiation. A firm is usually responsible for negotiating all tenant leases and renewals, or, in the alternative, for recommending the best leasing company in the area and coordinating leasing activities with that company.

Tenant Relations. The professional property management firm is attentive to tenants’ needs and responds to their concerns immediately. It should have a written policy for receiving and resolving tenant concerns.

Purchasing Procedures. Firms establish procedures for the purchase of all equipment, supplies, contracted building services, and insurance coverage.

Contract Specifications. Commercial property managers prepare specifications for all contracted work (such as tenant improvement construction), obtain competitive bids, and supervise the projects.

Documented Procedures. Commercial management companies establish documented procedures to ensure compliance with all federal, state, county, and local governmental statutes as well as administrative regulations, ordinances, and fire, health, and safety codes.

Making the Final Selection

Whether evaluating firms for yourself or your clients, look for a commercial management firm that provides the type of management services needed. Not all management firms manage all types of properties. As you get close to making a final decision, meet again with the selected firm to review its proposal and specifications. This is the best time to clear up uncertainties and negotiate the management agreement-don’t wait until after the contract has been signed.

Remember that property management fees are directly proportional to the quality and quantity of services provided. Management fees generally are based upon a percentage of collections, though they vary in different parts of the country for different types of properties and are strictly negotiable between the parties. Percentage fees can be based on different portions-or all-of the income stream. For example, with shopping centers, the fees for basic services can be a percentage of net rent collections, gross rent collections including triple net expenses and advertising and marketing fees, a flat fee up to a certain level of income and a percentage after that, or some other calculation. There can also be a percentage administrative fee applied only to triple nets, in addition to a basic percentage of net or gross income.

Alternative fee structures include a flat fee or a flat fee plus a percentage of income. Factors for consideration include the size of the property, average rent level, difficulty in managing the property, location, amount of time needed to manage the property, and any special reporting required.

More than ever, investors must select commercial management teams with care. The right property management firm will provide the management expertise, financial stability, professional excellence, and integrity required in today’s competitive real estate market.

Commercial Real Estate Investing & What You Need to Know

Commercial Real Estate Investing

When you think of real estate investing, commercial property is usually the first thing that comes to mind. After all, commercial development is where the money is at. As lucrative as it may be, commercial property is not the type of investment you want to dive head-first into without an education.

How Commercial Real Estate Investing Works

When people invest in commercial real estate, they’re investing in real property, and that property is used to generate a profit.

Commercial real estate can include:

Warehouses

Apartment complexes

Shopping malls

Industrial property

Office buildings

Hotels

Medical centers

Farmland

Any property that is used for commercial purposes, or to run a business, is considered commercial property.

Investments generate money in two ways:

Leases, which generate rental income

Appreciation of property value over time

Finding property in an in-demand area is the key to making a smart investment.

The Pros and Cons of Commercial Property Investing

Any kind of property – whether commercial or residential – can be a good investment. But in most cases, commercial properties offer a better return on investment. Still, there are drawbacks that need to be considered. Before you make a decision on whether to invest in commercial real estate, you should understand the pros and cons.

The Pros of Commercial Real Estate Investing

There are plenty of benefits to investing in commercial real estate. These include:

Income

The most obvious advantage is income potential. With commercial real estate, the income-generating potential is generally much higher than with residential property investing.

Commercial properties typically have an annual return of 6%-12%, depending on the location. Single family home properties usually have a return of 1%-4% at most.

Fewer Active Responsibilities

Residential properties usually require more hands-on management. As a landlord, you’re on the hook for maintenance and other management responsibilities 24/7.

With commercial properties, your tenants will typically only be on the premises during business hours: 9am-5pm. Property insurance and maintenance may also be the responsibility of the tenant, depending on the commercial lease. These are called triple net leases, and they’re favored by larger brands that want to maintain a specific image, such as Starbucks or Walgreens.

Commercial tenants will be more likely to sign longer leases, which will save you the hassle of having to find tenants on a regular basis.

Better Financing Terms

Financing terms are usually more favorable and flexible for commercial tenants. Some owners can obtain 100% financing on a first or second mortgage, which is something you can’t do with residential properties.

Professional Relationships

The relationship between commercial property owners and tenants is usually a professional one. You’re dealing with a business – not a family or individual. Interactions are usually more courteous and professional as a result.

Better Price Evaluation

Commercial property is usually easier to evaluate in terms of pricing because you can see the current owner’s income statement. That statement will give you a good idea of a fair price for the property.

With residential properties, pricing is usually based more on emotion than anything else.

The Cons of Commercial Real Estate Investing

While there are plenty of advantages to investing in real estate, there are also some disadvantages that need to be considered.

Bad Management

Do-it-yourself property management may be okay with a residential property, but you’ll need to hire a professional to manage a commercial property. Special licensing is typically required to handle the maintenance tasks associated with commercial real estate.

What happens if you get stuck with a bad management team? If they slack on their responsibilities or treat tenants in an unprofessional manner, this can reflect badly on you as a landlord and may even get you in legal trouble.

The fact that you have to hire a professional to manage the property may also be a disadvantage to some investors. Hiring a management company comes with added expenses and other concerns that you wouldn’t have with a residential property.

Property management companies usually charge between 5% and 10% of the rent revenue in fees.

Fierce Competition

Commercial real estate can be fiercely competitive, depending on your location. With more competition, you may wind up paying a lot more for property than you had anticipated.

Greater Risks

Unlike with residential properties, commercial properties have public visitors. The more public visitors on the preemies, the greater the risk of someone getting injured. Liability concerns may be a turn-off to you as an investor.

Big Initial Investment

By nature, commercial real estate is more expensive than residential real estate. That means you’ll need to make a bigger initial investment.

The large initial investment makes it difficult for some investors to get their foot in the door with commercial real estate.

How to Secure Good Deals

With any real estate investment, being able to spot a good deal is the key to finding success. The top real estate professionals know exactly what to look for when combing through properties.

First, make sure that you have an exit strategy. A good deal is a deal that you know you can walk away from.

Along with having an “out,” you also want to learn how to properly assess a property. Know how to look for damages and estimate the cost of repairs. Learn how to assess the risk of investing in each property you look at. And don’t forget to estimate the costs of buying and managing the property to make sure it fits your financial goals.

As for finding a good opportunity, that part is more of an art than a science. But if you’re just getting started, you’ll want to look at the neighborhood the property is located in. Is the area in high demand? Is the local economy thriving, or slacking?

Talk to neighbors. Get a feel for the area. Trust your instincts.

When evaluating a property, there are a few things you can look at to assess its value:

NOI (Net Operating Income). This is calculated by subtracting operating expenses from the first-year gross operating income. You only want to consider properties with a positive NOI.

Cash on Cash: This involves comparing the first-year performance of nearby competing properties.

Cap Rate: A property’s capitalization rate can be used to calculate the value of the property. This method is often used when evaluating apartment complexes and small strip malls.

How Commercial Properties are Sold

Commercial properties are sold much in the same way residential properties are sold. But instead of considering the wants and needs of families and individuals, you need to consider the investor’s perspective.

What type of buyer are you aiming for? Someone looking for a 100% turnkey property, or someone who wants to make improvements on the property?

The purchase process may take longer than with a residential property, and the evaluation process is certainly more complex. But generally, properties are sold in the same way any other real estate property is sold.

If you’re thinking of investing in commercial real estate, weigh the pros and cons carefully and take the time to educate yourself on the process. When it comes time to search, look for sellers who are motivated and ready to sell for less than the market value of the property. Unmotivated sellers are far less willing to negotiate, which will make it harder to secure a good deal.

Real Estate 101 How Investing In Commercial Real Estate Works

Real Estate 101 How Investing In Commercial Real Estate Works

Commercial real estate is a broad term describing real property used to generate a profit. Examples of commercial real estate include office buildings, industrial property, medical centers, hotels, malls, farmland, apartment buildings, and warehouses.

Historically, investing in commercial real estate as an alternative asset has provided millions of investors with attractive risk-adjusted returns and portfolio diversification. But, many investors still don’t understand how commercial real estate works as an investment vehicle.

There are some key differences between commercial real estate investing and traditional investments such as stocks and bonds. Unlike stocks and bonds traded frequently on a secondary market, real estate is a scarce resource and holds intrinsic value as hard asset. Most often, stocks are purchased for their selling potential rather than their capacity as a source of income, hence the “buy low, sell high” heuristic of the stock market.

The investment strategy for commercial real estate is simple: there is inherent demand for real estate in a given area. Investors purchase the property and make money in two ways: first, by leasing the property and charging tenants rent in exchange for use of the property; and second by appreciation in the value of the property over time. Let’s examine these two aspects of the investment opportunities a little more closely: ​

Rental Income

Rental Property Commercial Real Estate Investment

Tenants differ across all types of commercial real estate investment properties. With different tenants comes different arrangements, property management needs, and lease agreements. Here are a few examples:

Office: Cubicles and parking decks. Example tenants would be a law firm or start-up company. The company pays the rent, and has lease terms often in the five-year to ten -year range.

Apartment Buildings: Multi-family apartment buildings typically have individuals or families as tenants. Leases can be short term or long term, but most are not for longer than a year, and some can even be month to month. This building can have more tenants and leases to manage, and more payments to account for each month.

Industrial: Warehouses and smokestacks. A typical tenant might be a manufacturing or distribution company. These properties aren’t generally located in areas that would be very desirable for a residential or retail property. Lease lengths are typically for five years or more.

Appreciation and Value Add

Appreciate Value Added Commercial Real Estate Investment

The second opportunity for potential returns from a commercial real estate investment comes from an increase in the property’s value over the period that the investor holds it. Properties can also lose value, and even the most disciplined, proven investment strategies can’t ensure gains due to outside economic forces that may arise.

In general, real estate is a unique and scarce asset class. More land can’t simply be “created.” In the middle of a major city, this scarcity is increased by demand. If demand increases for your property, or in the area right around your property, there’s a good chance that tenants will be willing to pay higher rent, and prospective buyers will be willing to pay a higher price than you paid originally to take it off your hands.

Appreciation through demand isn’t the only way the value of a property increases. Many investors take an active “value-add” approach to commercial real estate, making improvements to the property to increase its intrinsic value or its ability to earn income. One example of this would be updating cosmetic details or appliances of a multi-family apartment building. Updates such as these can allow the owner to charge higher rent for nicer apartments. Methods outside of improving the property might include rezoning an adjacent parcel of land, say from residential to multi-family, so that more apartments can be built. Any money spent to renovating a building can potentially boost the selling price of the building in the future.

Real World Example: Doug’s Apartment Building

Let’s look at a commercial real estate investment in action. Doug buys an old, 40-unit apartment building in Philadelphia for $5 million. He earns a rental income of $500,000 in year one after all of his expenses. As with all properties, some tenants leave each year. Doug renovates vacant apartments before releasing them out at higher rates to new tenants. Doug’s improvements increase the property’s rental income by $50,000 each year for five years, so by the end of year five the property earns $750,000 per year.

Commercial Real Estate Investment Example

Doug then decides to sell the apartment building for $16 million. The buyer was willing to pay a higher price than Doug did 5 years ago for two reasons: First, Doug renovated the apartments, which now bring in 50% more income than they did when he bought the building. Second, economic growth in Doug’s city increased property values as new renters and entertainment venues moved into the neighborhood. Nice job, Doug!

The Bottom Line

Unlike stocks, commercial real estate investments often provide stable cash flows in the form of rental income.

Commercial real estate is a hard asset that is also a scarce resource. It always has intrinsic value, and usually appreciates in value over time.

The value of commercial real estate is derived by the larger growth of the economy as a whole.

Historically, direct commercial real estate investment has been out of reach for the everyday investor. This is because investments in commercial real estate are typically dominated by institutional investors as projects require millions of dollars in capital and a deep reservoir of expertise for improving and operating a property.

Key Investment Guidelines For Rental SFR Properties

Real Estate Investing

Whether you’re looking for a conduit, traditional or hard money funding solutions. Winston Rowe and Associates can meet both your individual and professional investment objectives. They have some of the most creative capitalization plans in the market that are designed meet the unique set of financial circumstances of each  transaction.

Choose the right property and you’ll reap the rewards; the wrong one will end up costing you dearly. You can minimize the potential for losses if you remember these four things to look for when evaluating a commercial property.

Property Location. The most important aspect of real estate investing is the location of the property. Properties in prime locations provide investors options such as resale, or rental. Those in poorly performing areas are limited and resale or rental may be difficult. The only way to really know what the area is like is to drive through during the day, at night and on weekends. Take note of activity that may discourage future buyers or renters.

Property Condition.  The condition of the roof, foundation, windows and mechanical components are big ticket items that will greatly affect your budget.  Make sure you have hard cost numbers from your contractor before you take the deal. Don’t be overly concerned by cosmetic issues that are easily fixed. Fresh paint, updated carpet, and flooring are relatively inexpensive.

Asking Price. The determining factor will be what the potential future value of the property is. The listing price is an important part of the equation. You don’t want to invest more than the property is worth, especially if you need to do a large amount of rehab. Look at other comparable properties, same number of bedrooms, square footage, etc., and determine the amount you’re willing to invest. Don’t be surprised, sometimes your offer will be more than the listing price.

After Rehab Value.  When it comes to investing, look at the location, condition, sales price and after rehab value. When all of these things are in line, you’ll be on your way to a profitable deal. The combined total of the asking price, plus rehab costs will bring you to your total expenses. Determine the percentage of profit, or dollar amount, you want to make and evaluate whether your investment will fulfill your needs. If not, you will be wise to move on to the next deal. Evaluating the after rehab value of a property will help you determine whether the deal is one you want to take, or if it’s time to move on. However, this isn’t necessarily the value of the home. Once completed, it’s possible your investment will be worth far more.

When speed and experience are important and crucial to your SFR and multifamily investing success, a principal at Winston Rowe & Associates is always available to speak with prospective clients.

They can be contacted at 248-246-2243 or visit them online at http://www.winstonrowe.com

Data Needed To Make A Commercial Property Investment

As a commercial real estate investor you need to take a careful and critical look at the income and expense data of any property you are considering investing in.

To begin the analysis of income and expenses is to focus in the following areas.

Gross Scheduled Income is the total annual rent value of all units in the property. This amount includes the actual rent generated by occupied units, as well as the potential rent from vacant units.

Vacancy Allowance is usually expressed as a percentage of the gross scheduled income. As its name suggests, it is an estimate of the amount of potential income that will be lost due to vacancy. Some investors prefer to call this “vacancy and credit loss” so that it also accounts for uncollectible rent.

Gross Operating Income (GOI) is the gross scheduled income less the vacancy allowance. It is also known as effective gross income. In short, it is the amount you actually collect.

Operating Expenses are items such as property insurance and taxes, repairs, utilities, and management fees. Operating expenses include any costs that are necessary to keep the revenue stream flowing. Mortgage payments and depreciation are not considered operating expenses, or are capital improvements.

Net Operating Income (NOI) is the gross operating income less the operating expenses. In other words, it is what is left of your total potential income after all vacancy and expense have been subtracted.

Annual Property Operating Data (APOD) is the real estate equivalent of an income and expense statement.

Winston Rowe & Associates is a no upfront fee commercial real estate advisory and due diligence firm specializes in the financing of commercial real estate transactions.

That’s why Winston Rowe & Associates actually wants to speak with clients, so they can truly understand their business and its distinct needs.

The best funding solutions occur when they combine data with consultation and common sense.

They can be contacted at 248-246-2243 or visit them online at http://www.winstonrowe.com

Auction Financing For Commercial Real Estate

Real Estate Investing

Commercial real estate investors purchasing property through on line auction web sites often find it difficult to obtain proof of funds documentation that will enable them to participate.

Winston Rowe & Associates, a national full service commercial finance firm specializes in working with experienced commercial real estate investors through all phases; from the initial proof of funds documentation, to the hard money (bridge) financing then finally the long term conventional financing.

Commercial Property Auction Investor Program Highlights:

Their capital deployment is nationwide and starts at Two Million Dollars with no upper limit

Never an upfront or advance fee to process your transaction

Investors must have a verifiable cash down payment

A proven best practices business model must be in place

Major metropolitan areas are preferred

All commercial property types are considered

Loan to values (LTV) start at 60%

This program is only for direct investors, no brokers please

Winston Rowe & Associates always welcomes the opportunity to speak with clients directly. The can be contacted at 248-246-2243

 

 

 

Non Recourse Commercial Funding

Non Recourse Commercial Funding

Winston Rowe & Associates targets difficult-to-finance transactions – in which funding cannot be obtained from conventional lenders due to FIDC constraints on the bank, problems with the real estate, problems with the principals of borrower, problems with the transaction itself, or any combination.

Winston Rowe & Associates is a nationwide commercial real estate advisory and finance firm that offers a diverse mix of commercial real estate funding solutions to meet the individual borrowing needs and investment objectives of its borrowers, for both investment and owner-occupied commercial properties.

They can carefully structure the right financing solution no matter how small or large your transaction requires. Depending on the deal, Winston Rowe & Associates can offer recourse and non-recourse commercial real estate financing options.

Their knowledge and depth of expertise maximizes efficiency and becomes their client’s advantage.

Winston Rowe & Associates is a unique type of commercial real estate finance firm, they do not charge any upfront fees like their competitors to review or perform due diligence for your transaction, because of this savvy investors have been turning to them for their financing needs.

Winston Rowe & Associates considers the ensuing property types for capital deployment.

Apartment Building & Multi-Family

Office Building

Retail Centers

Industrial Property

Shopping Centers

Mixed Use

Assisted Living Facilities

Medical Centers

Hotels & Resorts

Winston Rowe & Associates always welcomes the opportunity to speak with clients directly. The can be contacted at 248-246-2243 or visit them on line at http://www.winstonrowe.com

 

Strategies Investing In Real Estate

Strategies Investing In Real Estate

Whether you aim to do a quick flip or you’d prefer to generate passive income over time, here are the details and resources needed to execute on each strategy.

Although buying and holding is the most common and traditional strategy used for real estate investing, there is actually a variety of different strategies used.

Some of these are simple and can be executed in just days, while others can be used on an ongoing basis to create long-term value.

How does each strategy work?

1. The Fix and Flip the first impression of a house is incredibly important. The flip involves buying a house that can be easily improved, and then making minimal cosmetic improvements and repairs to sell for a better price.

For the right property, taking the time to fix small issues with flooring, walls, landscaping, and paint can pay off almost immediately.

2. Buy and Hold this is one of the oldest strategies in the book, and it’s designed for long-term passive income.

By purchasing a property and leasing it to tenants, it creates a stream of monthly cash flows, and even offers potential tax benefits for the owner.

3. Wholesale this has similarities to flipping, but involves finding a buyer for a seller and taking a percentage off the sale. If done right, this can be done quickly and with minimal risk.

4. Buy, Renovate, Rent, Refinance, and Repeat likely the most complex strategy in real estate investing for beginners to follow, this can ultimately be used to provide benefits in both the short and long term.

It involves four steps: buying a property, renovating it, renting the property out to tenants, and then refinancing the mortgage later on. Then the process repeats itself.

This article was prepared by Winston Rowe & Associates.

They are publishers of Free eBooks and provide financing for a wide variety of commercial real estate

You can contact them at 248-246-2243 or visit them online at http://www.winstonrowe.com