Archive for the ‘Property Management’ Category
We’ve just completed construction on another fourplex for Adaptive Realty Fund 1.
This one is on London St, just south of the 101. It’s kind of an experiment for us, since we’ve never done a project there before. But the units came out great, and we’re pretty confident we’re going to get our rents.
If you know anyone interested in an amazing 2 bed / 1 bath place with private outdoors space, two off-street parking spaces, and all of the modern conveniences, have them shoot an email to Doll [at] adaptiverealty [dot] com.
Meanwhile, check out these pics:
We just signed the last lease on a 13 unit project on Silver Lake Blvd.
Total time to lease up all of the units was 18 days, start to finish.
Rents ended up averaging around 10% more than what we expected when we started the project last Christmas.
Hat tip to Jon for his designs and Ilana for managing the whole leasing process.
If you spend a lot of time in crappy parts of LA (like I do), you have probably noticed an odd kind of retail establishment popping up in low-end strip malls: Water stores.
Here’s how these businesses work:
- They have a normal connection to the city water system
- They install a fairly expensive charcoal filtering system to filter the city water
- The sell the water, sometimes via vending machine, to customers who bring in containers of the type you see on top of office water bubblers
But wait, you ask, why do people need to pay for filtered water when city water is supposed to be potable right out of the tap?
The answer, like many things on this blog, comes down to rent control. Why?
Imagine you are the owner of a 1920s apartment building with, say 30 units. Your building is rent controlled and many of your tenants have lived there for years. Your plumbing system probably dates to the time the building was built, with patching done over the decades as the pipes started to leak.
Now the water in your building is brown coming out of the tap due to corrosion in the pipes and your tenants want you to fix it.
Re-piping your building is going to cost you around $100k, give or take. The city will only let you recover 50% of the cost from your tenants in the form of a maximum rent increase of $50 per unit spread out over 33 months (almost three years).
So, here’s the investment decision:
- Invest $100k
- Get back $50k, in the form of additional monthly payments of $1,500 for nearly 3 years
Do you make that investment? Not if you’re sane.
So, your tenants spend time and money each week driving to the water store to fill up bottles like they live in a village in the developing world, instead of in the center of the second largest city in America.
Just opened a new project for a fee for service client on Silver Lake Blvd.
Take a look at these units: http://losangeles.craigslist.org/lac/apa/4151779381.html
I spent two weeks right before Christmas 2012 helping our partner close on what was a terribly neglected, blighted property in a great location. It’s amazing to see what Jon has done with the place.
If you or someone you know is looking for a stylish one bedroom apartment with every modern convenience, private outdoor space, and parking, my strong suggestion would be to get in touch with Ilana at (215) 833-5015.
Interesting story from NY over the weekend about a court case which will determine whether a rent-controlled tenancy is an asset.
Here is a simplified version:
- Woman in NYC has a rent controlled apartment
- She runs up large credit card bills
- She files Chapter 7 bankruptcy to get the creditors to charge off her debts
- Her landlord steps in and offers to buy out her lease, with the money going to the creditors
- His offer does not require her to move out, but would prevent her from passing the apartment on to her 50 year old son upon her death
The question is whether the woman’s rent controlled tenancy is (1) an asset which can be ordered sold by a judge in order to satisfy a debt; or (2) a public benefit, like food stamps or welfare, which can not be treated as an asset and sold off.
Why does this matter?
Obviously, if the rent controlled tenancy is an asset, then any rent-controlled tenant who declares bankruptcy is under threat of being evicted, since the landlord may step in and offer to (partially) satisfy the creditors in exchange for freeing up the apartment.
If it’s not an asset, why can the tenant voluntarily agree to sell / monetize it under normal circumstances?
My personal view is that it is an asset and that it ought to be treated like one in all kinds of ways. For example, I think tenants ought to be able to borrow against their tenancies. And, when they accept money to move out, the money they receive ought to be treated as a capital gains, rather than as income.
We’ll have to wait for the court to figure out where it comes out on this…
We are just finishing a Silver Lake triplex we renovated on a fee-for-service basis for a very nice family.
We put the upper two units online this weekend and we’re getting a ton of interest.
Here’s the Craigslist ad.
If you’re interested in an incredible, newly-renovated 3 bed / 1 bath apartment in the hills north of Sunset with parking and a large private outdoor space, walking distance to the Thirsty Crow, Dusty’s, Local, etc., you should get in touch with Ilana by texting 215-833-5015.
My strong suggestion is to move very quickly… this building is going to lease-up quickly.
We’ve been doing this for a while now and we’ve learned a lot about what makes a great building. Yes, the location is important. And the renovations have to be right.
But a major part of making a building great for the people who live in it and manage it is making sure that the tenants are nice people. So, we’ve established some ground-rules to try to ensure that we get the right kind of people in our buildings:
1. Have good credit. It’s pretty tough to check references these days, because a lot of landlords are worried about being sued for saying the wrong thing (though we try!). So, we use a credit check as a proxy for looking at your financial reliability. In general, we don’t mind debt – lot’s of people have student loans. But we don’t like late / missed payments, because if you’re willing to stiff your lenders, you’re probably willing to stiff us.
2. Have two or fewer pets. Some people like visiting zoos (not me, but that’s a different story), but no one wants to live in them. It’s not fair to the other people in the building if we allow in huge numbers of pets. So we might allow 1-2, depending on the building and the pets. But we’re not allowing more.
3. Have some way of demonstrating sufficient income to cover the rent. Oh, you have no income? But you’d like me to give you a brand new, beautiful apartment in a great part of town, one that would cost me $3-5k to get back from you if you don’t pay? I’m probably not signing up to that deal.
4. If you don’t have great credit or a way to demonstrate income, be prepared to put down a larger deposit and/or have a co-signer. We totally understand that some people have weird/untraditional circumstances. Maybe you come from another country and don’t have credit yet. Or maybe you don’t work, but have some dough in the bank or a parent who foots the tab. That’s cool… but we’re going to need to make an explicit arrangement so that we’re not left holding the bag.
5. Don’t be a jerk. This one is slightly harder to quantify. But, if you miss appointments with our leasing people, treat our staff rudely, fail to answer calls / texts / emails, be assured that you won’t get one of our apartment homes. There are plenty of nice people out there; life’s too short to deal with jerks.
One of the challenges of being a property owner is figuring out how much to spend maintaining / improving your building.
There is a permanent temptation to keep costs down by papering over problems. You can almost always find a cheap way to fix whatever problem has arisen. And, short term, you probably won’t notice much of a difference in how your building performs financially (except, of course, that your costs will be a bit lower, so there will be more cashflow).
However, over time, if you take the cheaper choice every time, your property will degrade. You may not notice, because you’re so used to how the place looks. And, your rents probably won’t decrease… in fact, they will probably increase, because that’s just the nature of owning apartment buildings in Los Angeles. So, how does the degradation of the property hurt you?
Simple: Your rents won’t rise as much as they could. And, because of rent control, each loss rental increment will compound. That $100 increase you didn’t get isn’t just $100. It’s $103 next year and $106 the year after that and $109 the year after that. Over time, across all of your units, that lost rent adds up.
Twenty-seven and a half years down the line, when the building is fully depreciated, and you or your heirs go to sell it and 1031 the equity into a new building, all that missed rent will result in a dramatically lower selling price.
So, do what I do: When something breaks, and you have the chance to do the right thing or the cheap thing, do the right thing. Yeah, it hurts short term. But the long term benefits of being a good steward of the property will accrue to you and/or your family. Oh, and it’s also just the right thing to do.
If you have a beat-up, rent controlled building that you’re considering selling and a vacancy opens up, DON’T FILL IT.
- Unless you spend a lot of money fixing up the building before you rent it, you’re not going to get top dollar from the new tenant;
- So, you’re going to have someone in there at less than market value;
- That person is very likely going to want to stay in the building for a long time (after all, he’s paying below market!) and he’s got the right to do so under rent control.
Your potential buyers know this. They know they’re either never going to get that person out, or they’re going to have to pay a bunch of money to make it happen.
Either way, that means they’re going to be willing to pay you less than they would otherwise have paid.
Now, on the other hand, if you follow my advice, the buyer is going to be able to fantasize. He’s going to imagine the building all fixed up and pretty. Then, he’s going to be willing to project some very high rent for that unit, a rent which will help him justify paying you the (probably ridiculous) price you want for your building.
Sometimes people question why it’s so important to get that last dollar of rent.
On a $2800 apartment, does an extra $100/month matter? After all, $100 is only 3.6% of $2800… no a big deal, right?
Wrong. Here’s how we think about rent in our business:
- All buildings are worth some multiple of their total annual rent
- In our areas, that multiple is currently 11-13x GRM
- So, $100 of extra rent per month x 12 months x (say) 12x GRM = $14,400 in building value
So, if you ask me to take $100 / month less in rent, you’re asking me to light $14,400 on fire. Which I’m probably not going to do.
A final note: Implicit in the above calculation is the idea that you are going to sell the building. If you’re not, then getting that last dollar is a bit less important. After all, charging a bit less rent reduces turn-over (because your units are a bit under what the tenant can find somewhere else). So, particularly in a non-rent control building, it’s not unreasonable to take a bit less, once you factor in the costs of turning units over (maintenance, lost rent while its vacant, leasing commission to refill it).