Black Friday, Cyber Monday and the Move-In Month

Black Friday, Cyber Monday and the Move-In Month
By: Nicholas A. Dunlap, CPM

The retail sector of the consumer marketplace is not the only place to find value or bargains this holiday season. Landlords across Southern California who own or manage multifamily, commercial, office and other property-types are looking to fill vacancies and avoid what can generally be a one or two month slowdown in activity. While we have not drastically reduced rents, we have in fact introduced move-in specials as needed in our best attempt to deter the slowdown.

On approved credit, applicants can move-in to a 1 bedroom, 1 bathroom apartment home in Anaheim for just $500. Their 2nd month will be their first full month of rent which will be paid in the amount of $925. Holiday slowdown aside, the economy is in the gutter and the C+/B- property-type has been hit hard. Prospective applicants often have poor credit, borderline sufficient income and a difficult time coming up with the full $1,450 move-in expense. Truly understanding the marketplace and introducing specials to attract more prospects is the best solution that we have found. Knowing that our customers are strapped for cash so-to-speak, the low move-in expense allows them the ability to move in for a fraction of the cost.

Look at your most recently approved or rejected applicants. Do they share any commonalities? Do they have a short-sale or foreclosure that damaged their credit score? Did they not take an application because they could afford the rent but not the upfront move-in expense? If you notice a pattern, consider introducing a special marketing campaign to fill your vacancies. Just think, you can potentially prevent 2 month’s rent loss if you act quickly.

Real Estate Transactions Are Up, But Let’s Not Get Too Excited

Real Estate Transactions Are Up, But Let’s Not Get Too Excited
By: Nicholas A. Dunlap, CPM

An article published in the Wall Street Journal today further described the mess that is the residential real estate market. Per statistics included in the article, as many as 23% of the US or 1 in 4 homeowners currently owes more on their house than it is worth. In addition, values in some instances have dropped so far that over 5.3 million homeowners owe more than 20% over their home’s current value. Let’s not forget the bright side to the equation: over 77% of US Homeowners have equity and are not in this mess.

Perhaps the more alarming statistic was the fact that over 7.7 million homeowners are currently more than 30 days late on their mortgages. This will have a tremendous impact on credit scores and could further tighten the already constricted credit and financing market. Many of these homeowners are likely to see credit card interest rates increase as a result of their late payments, further hampering their financial situations.

Real Estate values were the topic of numerous headlines earlier this week as news sources reported that the sales of existing homes were up 10% and were at a seasonal high for recent years. The last time transaction volume was at this level was February of 2007.

The Rental Market: Something to Holiday Cheer About

The Rental Market: Something to Holiday Cheer About
By: Nicholas A. Dunlap, CPM

For those familiar with the for-sale and rental segments of the residential real estate market, you know that the end of the year typically marks a two or three month slowdown. November, December and even January are historically seen as times in which residents stay in their homes and opt not to move until after the holiday season. This is great for the landlord or owner of the occupied property. The problem is for the owner/operator of the vacant property which can sit for three months, losing income and incurring maintenance and other turnover expenses. There are several things to consider when marketing and leasing your property over the holiday season to ensure that you do not miss your best shot at a full-house (pun intended).

Do not judge a renter by your own for-sale standards. Often times property owners, especially those who have recently purchased or financed a home have a tendency to evaluate their prospective renters along the same guidelines they were required to comply with. Newsflash, if they met the requirements you did, they would be purchasing a property of their own and not leasing for the time being. Evaluate the total debt/credit profile, not just the credit score. There is a huge market for former short sale/foreclosure-owners as tenants, evaluating the full credit profile is key. Specifically, look for the impact of the foreclosure or short-sale on their credit report and evaluate other aspects of their payment history, credit cards, etc. If they have a history of paying on time or in full with the exception of the short sale or foreclosure, consider them strong applicants.

Part of the holiday slowdown is brought on by the fact that people are not looking to spend extra money on housing. One of the best ways to generate activity and get more showings is to adjust the price or introduce an incentive to prospective residents. For example, waiving an application fee, offering a gift card or offering a dollar amount discount off of the rent can do the trick and drive additional prospects to your property. Not doing so can result in 2 or even 3 months of lost rent. You decide for yourself: is it better to lose $1,000 off of the first month’s rent as a move-in special or to lose 3 months of rent on a vacancy? I know my answer.

Responding quickly to prospective buyers or tenants is of the utmost importance. Nothing puts a person off more than submitting an offer or an application and having it ignored or not acted upon. I recently made an offer on a property that was privately-owned and waited over 30 days before getting a response from the seller. Needless to say, they have now contacted me 3 times and have subsequently lowered the asking price by over $45,000. Had they responded sooner, I would probably own the property now. Luckily for me, I passed on it after not hearing back and have no regrets. Applicants or buyers for that matter, will pass if they do not hear back in a timely manner of less than 24 hours. It is human nature and we are dealing with a person’s home, the one place they can go to be comfortable. They expect a timely response.

By taking these 3 points into consideration, you will be better prepared to welcome the prospects that come your way. Please keep in mind, I am not a credit counselor, but I do evaluate the rental applications of prospective tenants on a daily basis and am happiest when I can call a Resident Manager with approval of an application. However, it is unfair to existing residents to be imprudent when considering new applicants. If you are able to introduce an attractive special, have in place effective resident screening criteria and respond quickly, there is no reason you should not have a happy holiday season at your rental property.

Can't Figure Out the Commercial Real Estate Market, Take a Look at The Yankees

Can’t Figure Out the Commercial Real Estate Market, Take a Look At The Yankees
BY: Nicholas A. Dunlap, CPM

Major League Baseball. Although it is still America’s National Pastime, our country’s oldest organized, professional sport is a big business. A huge business for that matter, one with hundreds of millions of dollars spent to retool and revamp in the off-season. Ownership invests in players, trades players and assembles the best possible team they can to go out and win ballgames. Recognizing the statistics and output behind each player helps the decision maker determine whether the player is the right for their team.

In a similar and yet unrelated field, we are in the business of investing and managing commercial real estate. Unrelated yes, but similar in that we deal with multimillion dollar assets whose inherent value is dependant on their ability to produce and generate according to our qualifications. With commercial real estate, when an asset ceases to produce acceptable or sufficient returns, we sell or trade the asset.

The New York Yankees are known for consistently fielding one of the greatest teams in baseball. Although they do not always win the World Series let alone the American League Pennant or the American League Eastern conference, they always play hard and represent themselves as the world class brand they are. Earlier this week, the Yankees won the World Series and made their return to the top. This is their first World Title since the year 2000. Although they made it to the World Series in 2001 and 2003, they came up short both years. They were unsuccessful in other playoff match ups and last year, failed to reach the postseason for the first time since 1993.

Like them or not, the Yankees’ history over the past 20 years is a lot like the commercial real estate market at present and provides a great metaphoric outlook for us going forward, especially in Southern California. The late 90’s and early 2000’s offered great buys, 2001-2003 prices began to increase and heat up, 2004 saw a continued increase into 2005 where prices skyrocketed and ultimately began to rise high until 2007, when we saw prices begin to peak and then…drop. Right now, we are on a gradual slope downward that should ultimately lead us to good, sound cash-flow buys.

Just as the Yankees are consistently world champions, despite a few down years and humbling seasons, commercial real estate in Southern California is a sound investment. Think of fundamentals such as rental demand and affordability. Most renters are priced out of the for-sale marketplace and renting is still the more affordable option. Until this changes, commercial real estate is as solid and dependable as the Bronx Bombers in the postseason.