AAOA Blog

Marketing to investors vs. current tenants

by Robert Griswold

Q: I have a rental condo that I want to sell due to some financial issues and I could really use the money. My tenants have had three one-year leases and asked that I give them a new two-year lease because they say they love my rental condo. Because I was unsure of my finances, I let their current lease expire so that they now are on a month-to-month rental agreement. My understanding of our state law is that I am simply required to give them a minimum of 60 days’ written notice to terminate their tenancy. Can I give them 60-day notice and then have the unit vacant for selling?
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Rent it Right

by Janet Portman, Inman News

Q: My son and his wife are three months into a one-year lease of a condo. Recently, the owners announced that they are selling the unit, and the agent has scheduled open houses two Sundays a month. The agent also advised them that he would show the unit on 24 hours’ notice. (more…)

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Not all real estate auctions are sad and anxious moments synonymous with desperation and bankruptcy. For years, auctions have been a convenient, private and efficient method of moving inventory in a hurry — especially for companies that need to clear properties from their books by a specific date. For them, it’s simply a matter of sound business economics.

Corporations, public agencies and institutions routinely liquidate “real estate-owned” portfolios to free up cash for other projects. These sellers are not usually affected by interest rates or economic environments, but the past few years have been atypical and the conditions have definitely added more properties to inventories. The acceptance and success of real estate auction sales has become a primary method of choice in disposing of property.

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My home county, Maricopa, in central Arizona, could boast one ignominious record already this year: its property tax lien auction was the biggest ever. Maricopa is not alone. All across America, counties are working through record levels of property tax auctions due to persistently high levels of foreclosures.

To savvy investors, this is an amazing opportunity to participate in one of the most low-risk investments in the property sector. That is also why the competition is brutal — especially from institutional investors such as banks that purchase millions of dollars’ worth of tax liens in one vast swoop of their investment arms.

In the United States, all property is taxed. It doesn’t matter if it is a house, condo, commercial building or raw land; it is all taxed because the counties use this income to pay for government, courts, schools, and police and fire departments. If the property owner for one reason or another doesn’t pay those taxes, the county, which still needs that income, places a lien on the property and in about half the states auctions off the lien.

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The biggest loss you may ever experience as a landlord is a prolonged vacancy.

Yet, in this economy, the tenant pool is shrinking, primarily due to high unemployment. According to researchers, even qualified renters who have jobs are fearful of committing long-term, and they are in a better position than ever to buy their own home.

Finding applicants is more complicated than it used to be. Why is that?

Newspapers are losing subscribers. To compensate, they may be charging more for ads, or following the trend to move online. In fact, most newspapers now have their own online classifieds, although they charge as though they are advertising to subscribers.

Take a look at this example:This sample ad:  ”Move in Now.  For Rent. Great Deal. 303-555-1234″ as a plain text ad in the Denver Post Classified would cost $546 for thirty days, $176.75 for one week.  Pictures are an additional $25 a piece, and bold text is another $10.  Compare that to this Sample Ad that you could run online — in fact, you could run an unlimited number of them online for three months for $39.95. You can also link to this listing in other ads or announcements, or email it to applicants who want to find out more about your rental.

The job market is shifting geographically.  New job seekers as well as laid-off workers are moving to where opportunity takes them, whether that is a new job or a new college. Rental signs alone miss a significant number of qualified applicants.

Many renters are advancing students, raised on technology.  They get their news from the Internet.  They don’t subscribe to a newspaper.  They don’t even know where to get a newspaper. In 2008, 26 million people shopped for apartments online.

Many online apartment searches begin as research. Renters shop the ads to get a feel for the market in your area. Once they decide to move, those are the listings that stick in their minds.So how do you get renters in today’s climate: If you want to snag a good tenant, you’ll have to cast your net a little wider than before.

Keep the sign up.  Focus on curb appeal. There will always be some number of applicants who drive by.

Look at local spots for free ads. Hit your tenants for referrals, advertise in local offices, health clubs, bookstores that have community bulletin boards.

If ads in your local paper are expensive, go directly online with your ad - chances are, it’s cheaper and more effective. Watch out though.  Free services like Craigslist have come under some scrutiny after a few high-profile rental scams hit the news. Con artists take deposits for properties they never owned. Some apartment searchers are leery of getting ripped off.  Tenant advocates suggest searching on paid sites – that eliminates many of the risks.

AAOA members have a great opportunity to save 50% on online rental listings on national databases, but for a limited time.  You must subscribe by February 5th to get in on that discount. Click 50% discount.  Once you register, enter coupon code AAOA50 as you check out.

See our feature, How to Write a Killer Rental Ad.

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by Christopher Benedict

Buying rental properties can be a great way to build your wealth. However, as in most real estate investments, it is sometimes difficult to know if you’ve found a good deal – especially the first time, and if you aren’t working with a good property management company.

Here are some things to look for to be sure that rental is a great investment.

Location. If traffic is heavier, rentals are easier to rent. A sign will often pull more response than an ad in the paper. If it is a nice locale, it will usually rent faster. This is also true of places close to amenities.

Numbers. Run the numbers. Get every last expense figured into your calculations, and be sure that you will have positive cash flow from the start.

High home prices. Look in towns with high home prices, as this creates rental demand. What do people do when they can’t afford to buy? They rent.

Low maintenance buildings. Avoid cedar-shake roofs, and wood-sided buildings. Look beyond current expenses to how much maintenance the building will need. Low maintenance means less headaches and more profits.

Good rental history. Ask to see the rental history. Note how long residents are staying on average, and how well they pay on time.

Below market rents. Buying rental properties with below-market rents means you get to raise rents. Raising rents means you immediately raise the value, because rental property values are based on income.

Complies with zoning and fire codes. Have it inspected, and ask local officials if there are any problems.

Less than 20 years old. This is somewhat arbitrary, but if you limit your search to newer buildings, you will be less likely to have building code and maintenance problems.

Owner/manager that is out of state. These properties are often the best deals, because it is tough to manage a property from far away. An out of state seller is often more concerned with a quick sale than a high price.

Neighborhood is stable or improving. Stable is okay, but if you can buy in a neighborhood that is improving, you’ll rent the units more easily, and therefore get automatic appreciation in value with time.

And of course, have in place a good property management team in place. They can reduce your headaches, and keep you out of the landlording business!

Christopher Benedict is a broker and property management with Main Line Real Estate in Philadelphia.

American Apartment Owners Association offers discounts on products and services for landlords related to your rental housing investment, including rental forms, tenant debt collection, tenant background checks, insurance and financing.

Find out more at www.joinaaoa.org.

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Site uses daily price reductions to woo buyers

by Steve Bergsman

I’m always a sucker for the next good idea, and the single-family residential market could use a good idea.

With more than 3.6 million homes on the market as of third-quarter 2009, perhaps someone could invent a way to sell more of those homes and stabilize the supply-demand equation.

Jim Hodson and Dan Connell certainly haven’t built the automatic sell-a-home machine, or even topped the time machine on “The Rocky and Bullwinkle Show” cartoon, which could return us to a point before the subprime mortgage crisis tipped the country into a recession … but they did create and are now putting to market one of the more unique concepts to help move foreclosed homes quicker.

It’s an Internet-based technology that takes the online auction concept and twists the scope slightly for a time-limited, open-market bidding system for foreclosed single-family residences. At first glance, Countdowntobuy.com’s methodology operates in a similar manner to other Internet auction technology such as eBay, but once you get into the site the differences are very apparent.

The biggest change is that once the estimated value of a foreclosed home is established, the price is reduced 1 percent a day for 30 days until the property is sold or reaches the bottom price at which the property could be transacted.

The whole process is automated so there are no messy negotiations. And unlike on eBay, the whole bidding war does not come down to the last 60 seconds.

Here’s a quick overview of how it works: A foreclosed property has an estimated value of $750,000. It goes to market on Countdowntobuy.com at $800,000 (usually listed slightly above estimated value so the bank has a little time to capture higher market value if there is demand out there).

For 10 days it is listed on the site for $800,000 and if there are no takers the site will drop the price 1 percent (of the estimated market value, or EMV) each day for 30 days. So after the first day, the price drops $7,500 (1 percent of $750,000). If there are no bidders at that price, it declines the next day another $7,500 and on and on until a bid matches or is bigger than the current day’s pricing.

As a buyer, you might think that property is worth just $710,000, so you put that bid in. The site will record your bid and tell you how many other people are bidding, but their prices are not disclosed. As the price is ticking down day by day, you might get nervous, thinking the other bidders put in prices higher than you, so you offer a new bid at $720,000.

Basically, a buyer submits a sealed offer anywhere within the established offer range and can adjust the offer daily.

If you’re not following any of what I just explained, no worries. The Web site has nifty little graphics that do a good job of illustrating the bid process.

Will this better idea work? Who knows? When I saw the Web site, it was in its beta stage. But, I liked the concept enough that I spoke with Dan Connell, president of Countdown To Buy.

“The concept was Jim Hodson’s idea,” Connell explains. “He lives in Connecticut, and there was a house not far from his home that wasn’t selling and he couldn’t figure out why. So, he came up with a methodology that would let the market determine price in what he thought was an efficient and objective manner.”

Connell went to an investor presentation during an early round of fundraising and thought it such a compelling idea that he voted two thumbs up by not only investing in the new company but signing on as president.

The infrastructure of the Web site does a couple of things. First, it houses property information — everything from photography, multiple listing service information and other content management “that we provide and aggregate,” says Connell.

Since this is a site dedicated to foreclosed properties, its initial success would depend on establishing relationships with such institutions as banks, servicers and even hedge funds that might have an inventory of REO (bank-owned) and foreclosed properties.

When I spoke to Connell, the site wasn’t officially opened yet and he was just establishing his first tie-in with a bank that was going to list properties on the site.

“A lot of our model is built around not just getting one home listed from an individual city, but getting 50,” says Connell, because the site provides property-specific information such as a full appraisal and a tremendous amount of additional content such as qualitative information about the surrounding area.

“When you’re buying a house there should be no surprises,” says Connell. “Our properties are examined up front by industry professionals, and relevant information such as an appraisal and property condition are posted to help evaluate the site.”

The key, however, to making the site work, is the automated pricing process through a regular declination and the automated negotiation. Once an offer meets or exceeds that existing day’s price, it is automatically matched, the buyer is notified, and the contract is set.

“We have been categorized as an auction site,” Connell says, “but we see ourselves as an alternative disposition site. The reason I say that is not because our process isn’t a type of auction, but we are very different in the real estate world as to the usual property auction process.”

It seems to be an eBay world out there. Countdowntobuy.com is not quite the same thing, but one can certainly get the same jolt of euphoria when coming up with a winning bid, whether it’s for a trinket, a collectible or a new home.

Steve Bergsman is a freelance writer in Arizona and author of several books, including “After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade.”

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Investors offer tips on off-campus rental housing

by Mary Umberger

Brad Hastings is a landlord whose tenants are expected to follow certain rules: No candles. No American flags hung as curtains in the windows. And for heaven’s sake, he doesn’t want to find 50 beer cans on the lawn on Sunday mornings.

Hastings’ 400 tenants are college students in two small, Southern towns. And he says business is good — different, sometimes, from the typical landlord experience — but nonetheless good.

He and business partner Matt King decided five years ago to specialize in developing campus housing. They jumped from their former telecommunications careers into a growing real estate niche that seems to be fed by a rich demographic and economic diet.

It’s no secret that the recession has slammed American higher-education budgets, forcing a retreat from their plans to upgrade and expand on-campus housing, which would seem to offer an opening for private providers.

At the same time, colleges are bursting with students. Almost 40 percent of the nation’s 18- to 24-year-olds were enrolled in college last year, setting a new record, according to a Pew Research Center report. That amounts to 11.5 million students in two- and four-year colleges. The 2009 data isn’t complete, but the researchers estimated that current enrollment would be even higher.

All of those students have to sleep somewhere, and small real estate investors have taken notice.

While the general rental market struggles through the recession, off-campus apartments catering to students seem to be finding more success, according to Jim Arbury, an executive with the National Multi-Housing Council, a Washington, D.C.-based trade group for the apartment industry.

“I wouldn’t say it’s recession-proof, but it’s recession-resistant,” said Arbury. “It’s still one of the bright spots in the housing market.”

Arbury doesn’t have specific data on the occupancy rate of student apartments vs. the broader market, though he said it can vary widely by locale.

Hastings estimated that in Rock Hill, S.C., where his company, Walk2Campus, operates near Winthrop University, the local rental occupancy rate is 83 to 85 percent. By comparison, his 275 units in that town are 94 percent occupied. (And his company measures occupancy in number of bedrooms filled, rather than apartments rented out.) It also has another 125 units in Farmville, Va., near Longwood University.

Walk2Campus’ business model is based on buying and thoroughly renovating single-family homes that are an easy stroll to class.

“We thought there would be high demand for proximity to campus and houses,” he said. “Frankly, having gone to college where there are houses and generic apartment complexes (Madison University in Virginia), it appeared to me that houses filled up first,” he said.

Attracting and retaining college-student renters requires a certain touch, and the business is not for everyone, Hastings said.

“It’s management-intensive,” he said. “You have a customer base who, possibly for the first time, are living out on their own. There’s a certain amount of hand-holding, teaching of life lessons.”

Sotiria Krikelis knows. She owns a large house that she rents to students at Stony Brook University on Long Island in New York. There have been moments that have tested her, she says.

“Because I also went to Stony Brook, I know when the party nights are, and all the tricks,” she said. “I recently had complaints of parties being held at the house, and I had to drive over there. I live an hour away, in Queens.”

She said she has had to talk to tenants about the simple fixes they can do themselves, such as changing light bulbs or flipping a circuit-breaker switch to restore electrical service, rather than calling her.

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Depreciation, inflation among important considerations

by Bernice Ross, Inman News

DEAR BERNICE: We recently bought a property in the area of Yakima, Wash., with a lot of equity in it. After the renovation, we still have an equity position of approximately $35,000.

Initially, the plan was to renovate and flip the property, but we’re now having second thoughts about selling and are thinking about renting the property out instead. We are retired and any additional monthly income would be very good, but it would also tie up the cash that we paid to buy the property.

With certificate of deposit rates down and the fear of the dollar falling due to inflation, is it wise to just rent out the property? Property values seem to be appreciating. –Joyce T.


DEAR JOYCE: While no one has a crystal ball, there are several indicators to watch that can help you predict what will happen in your market and whether you should keep this house.


1. Median prices
Median prices are no longer a good indicator of what is happening in the market. As more jumbo loans become available, more higher-priced properties will sell. The result will be that the median prices will appear to increase when in fact actual values could still be declining. In your area, however, median prices have held steady since 2007 despite the U.S. recession.

The National Association of Realtors’ latest metro-area price report found that the median price of single-family resale homes in the Yakima metro area rose 2.7 percent in the third quarter compared to the same quarter last year, to $158,400. That compares to a median price of $136,500 in 2006, $156,500 in 2007 and $153,300 in 2008.


2. Total homes sold
An increased number of transactions usually indicate an improving market. In your area there tends to be a pattern of increased summer sales and fewer sales around the holidays.


3. Percentage of homes sold for loss or gain
Check your area for statistics on the share of homes that sold for a loss vs. a gain, which can help you gauge whether it’s advantageous to hold onto your property and rent it, or to sell it.

4. Percentage of homes where values are increasing vs. where values are declining
If a large majority of homes are still decreasing in value — do you feel comfortable holding a property that could face continuing declines in value?


5. Price per square foot
From my perspective, this is the most important statistic to watch in gauging home values in a given area.


Should you sell the house or keep it as a rental? In terms of keeping the property, your location seems to have done very well as compared to most other places in the country. I agree with your assessment that the falling dollar will probably result in significant inflation.

The government may have to print more money. When this happens, money flocks to hard assets such as gold and real estate. This, in turn, causes these assets to appreciate. If this happens, an additional reason for holding the property is that you will probably be paying off your mortgage with an inflated dollar.


In terms of selling, there are hundreds of thousands of properties that are bank-owned and have yet to come on the market. This additional inventory could drive values down if it comes on the market all at once. Furthermore, most experts are predicting an interest-rate increase sometime in the next 12 to 24 months.

Unless the economy is much stronger than it is currently, an interest-rate increase means fewer buyers qualify to purchase your property. Fewer buyers could translate into price depreciation. Furthermore, the Bush tax cuts sunset in 2010. Selling now, when the capital gains tax is at a lower rate, may be a good idea.


Before you make a final decision, see your certified public accountant (CPA) or other tax professional. Ask him or her to calculate how much it would cost you to hold the property after taxes as well as the financial ramifications of selling the property. Once you have that data, youll be in the best possible place to make the right decision for you. Good luck!


Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of “Real Estate Dough: Your Recipe for Real Estate Success” and other books. You can reach her at Bernice@RealEstateCoach.com and find her on Twitter: @bross.
Copyright 2009 RealEstateCoach.com

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by Robert Griswold, Inman News  

Q. My rental home has been for sale for more than a year. During this time, I have given my tenant a rent discount for allowing me to show the home and for the fact that he will have to move on a 30-day notice when it sells.

I have now sold the home and gave my tenant the required 30-day notice in writing. However, my tenant has informed me that he cannot move until one week after the escrow is due to close. My buyer insists that she will cancel the sale if the unit is not vacant, as she must immediately move in the day escrow closes, which is approximately two weeks.

I know that I have legal remedies, but an eviction action will take at least 3-4 weeks and I will lose my sale.

What can I do?

If I lose the sale, do I have any recourse against my tenant?

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