AAOA Blog

Dear AAOA member,

At the request of members like you, we have created this newsletter to help you save money on your rental properties and get more value from your membership with the American Apartment Owners Association.

Each month we will be answering member questions and showing you some GREAT ways to save money on your rentals.

This month’s edition is very important, for two reasons:

1.) You may be able to save a lot of money on your rental if you are paying too much on interest. Read below to see how AAOA friend Alan Jones tells you how determine if you are paying too much interest. Feel free to call Alan for more information.
2.) As many of you know, the credit bureaus recently made some drastic changes in the way businesses access personal credit information on tenants. Their changes were a long time coming, due to all the personal identity theft that has plagued consumers over the last several years. Learn how these changes have affected AAOA members, and how AAOA has responded to keep your rental business thriving.

Please let us know if there are articles you would like to see in upcoming editions. Simply drop an email to info@joinaaoa.org.

Warm Regards,

Dan Page

Development Director, AAOA

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As a Property Manager you may see the logical benefit in encouraging residents to carry risk insurance. It reduces the chance of your having to tap into your own insurance deductible in the event of a residents’ “negligence ”. But you may ask yourself how can this yield profits for me? How much does it really affect my bottom dollar?

There are several ways that requiring renters insurance can increase your revenue, reduce your expenses, and protect you from risk. Consider that nearly 75% of residents have no renters or liability insurance, and property managers often end up paying the price. Losses can be in the form of fire, smoke, explosion, and in some instances, water. If one of your residents caused a fire, they could damage not only their rental units, but other units as well. This could cost you an immeasurable amount of loss if your resident does not have renters insurance coverage.

As an incentive for obtaining renters insurance, property managers can offer monthly lease or rental options at a discounted rate. This will encourage more residents to lease or rent in your property thus increasing revenue. Some insurance companies will offer a transaction fee for every resident that enrolls in their renters insurance program or a revenue paid per door. Simply by presenting their renters insurance program to your residents, you can create an additional source of revenue.

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Nowadays more property management companies are requiring that residents carry personal liability coverage as a condition of their lease agreements. One reason why they are requiring it is simply because many renters do not choose to obtain it voluntarily. The question of whether to purchase various types of elective insurance is difficult for many because it is money spent on the unknown. This can be especially true of renters insurance. Although many people are long-term renters, many residents live in their properties temporarily and do not want to invest any additional funds in renters insurance. Overall, most renters don’t believe they need insurance. A survey conducted by Cambridge Reports, Inc, for the Insurance Information Institute found that fewer than 3 out of every 10 renters purchase renters insurance. So why should any resident invest in renters insurance and why is it important for you to require it?

Renters insurance provides a simple peace of mind when it comes to the resident’s valuables and personal liability. Nearly 75% of residents have no renters or liability insurance, and community owners often end up paying the price. Losses can be in the form of damages caused by fire, smoke, explosion, and in some instances, water.

Have you ever thought about what would happen if you or one of your residents accidentally started a grease fire and it damages one or more of your units? Don’t think it can’t happen. The Wall Street Journal recently reported a fire that swept through an Austin, Texas apartment building leaving all the building’s units uninhabitable and 20 tenants without homes. Just this month an apartment fire in Detroit took the lives of a mother and her 3-year-old son. Investigators said the fire started on an electric stove. Catastrophes such as these could easily happen on your property and cause immeasurable damage.

Policies for renters insurance will cover your residents’ personal property in the event of a fire, theft, or other liability damages. The policy can also cover living expenses if there are forced to vacate their home because of damages due to a covered loss.

By encouraging your residents to obtain insurance you are informing them that they are the ones responsible for potential losses or personal liability. Explain to them that renters insurance is really the only security they have to replace their belongings in the event they are damaged or destroyed, and to protect their personal liability if others are accidentally injured in their home. Requiring renters insurance can ultimately offer peace of mind to both the property manager and the resident.

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Just like any loan institution commercial lenders are in the business to make money. The most important factor to any lender is to ensure that any money it has made in loans is paid back. The commercial loan lender must consider the 5 C’s of Credit each time it makes a loan.

Capacity to repay is the most critical of the five factors. Any prospective lender will want to know exactly how you intend to repay the loan. The lender will consider the cash flow from the business, the timing of the repayment, and the probability of successful repayment of the loan. Payment history on existing credit relationships – both personal and commercial – is considered an indicator of future payment performance. Prospective lenders will also want to know about your contingent sources of repayment.

Capital is the money you personally have invested in the business and is an indication of how much you will lose should the business fail. Prospective lenders and investors will expect you to contribute your own assets and to undertake personal financial risk to establish the business before asking them to commit any funding. If you have a significant personal investment in the business you are more likely to do everything in your power to make the business successful.

Collateral or guarantees are additional forms of security you can provide the lender. If the business cannot repay its loan, the bank wants to know where is a second source of repayment. Assets such as equipment, buildings, accounts receivable, and in some cases, inventory, are considered possible sources of repayment if they are sold by the bank for cash. Both business and personal assets can be sources of collateral for a loan. A guarantee, on the other hand, is just that – someone else signs a guarantee in addition to the collateral as security for the loan.

Conditions focus on the intended purpose of the loan. Will the money be used for working capital, additional equipment, or inventory? The lender will also consider the local economic climate and conditions within your industry and in other industries that could affect your business.

Character is the personal impression you make on the potential lender or investor. The lender will decide subjectively whether or not you are sufficiently trustworthy to repay the loan or generate a return on funds invested in your company. Your educational background and experience in business and in your industry will be reviewed. The quality of your references and the background and experiences of your partners and/or employees will also be considered.

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