Just a Landlord

Wolf Richter writes:

Steps in the Fed, and trillions of dollars get printed and handed to Wall Street, and asset prices become airborne, and Wall Street jumps into the housing market and buys up hundreds of thousands of vacant single-family homes, drives up prices, and armed with free money, shoves aside first-time buyers and others who would actually live in these homes, and turned them instead into rental units. Now in over 1,000 cities, prices are, or soon will be, as high as they were at the peak of the last housing bubble.

The difference? Last time, all that craziness was called a “bubble” with hindsight. This time, it’s called a “housing recovery.”

If you are planning to buy now and catch the rising market you should read this and think 2006…

A year ago I wrote of my five top ideas for real estate for 2013.

Of those ideas I have implemented .. not much.   Shortly after the first of the year 2013 we found that my wife’s ongoing back pain was being caused by a large benign tumor. She had it surgically removed on Valentine’s day and is fine today, but it upended things for a while

Today as I reflect on the past year and think about this coming year I reread the ideas posted last year. A year later they all hold value.

Two have been implemented as part of an effort to increase the value of membership by the Apartment Association of Southeastern WI’s  board of directors under the leadership of Joe Dahl.

The Association now has quarterly small group meetings as part of the Professional Membership. These meetings are an important element of #3 on the list, improving  how we share our collective knowledge

In a big step towards #1 on the list, reducing maintenance supply costs, the Association has teamed up with Home Depot, Pittsburg Paint, Sherwin Williams, and a number of other organizations to provide discounts to our members.

Home Depot offers a whopping 20% discount on paint and 2% cash back rebate on most purchases to our members. Sherwin Williams offers members discounts on paint equal to the discounts that major contractors receive. Pittsburg has similar discounts.

I would add a sixth and seventh opportunity for 2014, Crowdsourcing/Crowd funding for real estate.  I’ll post my thoughts on these in the next couple of days

The five most important Real Estate Ideas for 2014 remain:

(Clicking on the topic’s title takes you to the full article)

1. Reducing Maintenance Supplies costs
   Pre 1950 buildings in lower income neighborhoods require around $100 per month per unit for repairs, replacement reserves and improvements. Newer buildings in more affluent neighborhoods perhaps $50 – $65. This is all maintenance from leaky faucets and unit turnovers to new cabinets, new roofs, electrical upgrades, replacing parking lots ect. (more)
2. More Effective Maintenance Labor/Contractors
   Maintenance, replacements and improvements to rental housing represents nearly $100 million per year in the city of Milwaukee alone. A savings of even 1% is a lot of money. (more)
3. Become better at sharing our collective knowledge
   The ApartmentAssoc@YahooGroups.com is good beginning. However it does not work real well as a reference tool as the posts are not organized by topics nor apparently easily searchable for many users. (more)
4. Group purchase of a distressed block or two
   There has been this wild idea floating around in my head for years, acquiring a distressed block with a group of active owners and turn it around for fun and profit. (more)
5. Tech Meets Real Estate
   There certainly are huge opportunities for software/web solutions for things that cause frustrations for owners and perhaps tenants. (more)
6. Crowdsourcing for real estate, posting later in the week.
7. Crowdfunding for real estate, posting later in the week.

Many of you, okay a few of you as CBS 58’s news ratings have been in the toilet for years, saw last night’s broadcast on landlord tenant issues.

There were many factual errors in this news report that could cause you harm as a landlord if you blindly believed CBS 58.

1. SB 179 is not law today.  It will not become law until probably February first.  So if you begin implementing provisions contained in SB 179 today, you may be in trouble.  I would however encourage all of you to put the domestic violence disclosures in your leases today, as those provision have been law for a number of years.
2. The newscast made it sound as though WI law allows a tenant to use “Self Help” i.e. pay for a repair and deduct it from the rent.  Then the reporter confused this further by using the term “Rent Abatement”  to describe what the tenant had done.In Wisconsin tenants cannot hire someone and take the cost out of their rent unless you as the landlord explicitly agrees to allow them to do so. Tenants that follow the erroneous information contained in the newscast may find themselves receiving an eviction summons for nonpayment of rent, just as the tenant in the newscast did.

   “Rent Abatement”  is a completely different situation.  It only applies to conditions that materially affecting the health or safety of the tenant. This law does not permit rent to be withheld in full.

3. The reporter shows mold around the base of the tub surround and implies this is the landlord’s fault due to a toilet problem.  I’m unsure of the connection.  Usually a toilet moisture problem appears in the unit below or the basement.  It really seems to be much more a housekeeping issue.  My own tub would look like that too if I did not hit it with Clorox spray and a sponge every other week.  Whoops, cats out of the bag. My wife makes me help with the cleaning.  😉
4. The newscast states the new law reduces a landlords’ duty to disclose housing code violations.  Nothing in this respect was changed by the law, so your requirements are the same after this becomes law as it is today.
5. The reporter attempts to imply a porch collapse a few months ago at a property on 24th and National was the result of tenants being afraid to report a condition that required a repair.  The truth is the person seriously injured was a worker hired by the owner to make repairs to the porch.
6. The reporter more or less attacked Representative Strobel for sponsoring SB 179.  However Mr. Stroble really hit the mark when he pointed out the most important part of the bill is that once again we can have leases that prohibit criminal activity at our properties.
7. As my good friend Bill said:
   

   “This thread and this story, underline the need for the AASEW as industry leaders to put out their own stories and press releases.  We need to publicly respond to this kind of crappy reporting.  We are easy targets until we do.
   
   While we might not win the PR battle, we have to resist the bulldozer!”

   I agree with Bill except I probably may have ended the last sentence with a stronger word other than “dozer”

8.  There appears to be more to the story between the tenant and the landlord than the newscast reveals.  Below is a thorough analysis  by one of the Apartment Association  members.
   

   
   A review of the tenant’s CCAP record shows that she lived at 6115 s 13th street just before the landlord of her eviction address ( 2007-09 W Scott) bought the Scott st property. The record revealing this is an unemployment repayment warrant from around 2011. TV 58 reported Conrad  to be the landlord of the Scott  st property, but the actual owner is Southview Properties.

   Conrad may or may not be the actual landlord. He is the registered agent according to MKE property recording records.

   Guess where the Registered agent, Conrad ,  lives.

   6115 S 13th. Same bldg that the tenant lived in until she moved to the Scott st property.

   So, there is clearly a long history between this tenant and this landlord/registered agent and the tenant is attempting to exercise some vendetta by going to TV 58 and telling maybe 5% of the truth.

   But of course, TV 58 bought it all, hook line and sinker.

   I guess Snarlin Marlin was right, I shouldn’t be allowed on CCAP.  I might just find out the truth…

__._,_.___

In my embarrassingly long time at rental real estate, I started in 1977, I have seen low prices, I have seen low interest andI have seen easy money, but never all three at once. If real estate investing was a horse race this would be the trifecta.

Today there are really powerful opportunities as interest rates are at record lows, real estate prices remain depressed and there is actually money available for the right deals and the right borrowers.  As far as depressed pricing you can purchase properties today at the prices they were going for in the mid 90’s but now those properties have vinyl siding, new windows and good roofs.  Interest rates? HUD has 35 year, assumable, fixed rate multifamily loans available at silly low rates.  LTV of 83%. I think they are even non recourse.   Friday the rates for the 223 (f) were posted as 2.95%.

Find the right larger deal today, get it financed under these terms and you could quite honestly be set for life, barring of course our government doing something really stupid and destroying the entire economy.

AASEW president Joe Dahl has arranged to have four leaders in Milwaukee area lending speak to the Apartment Association tomorrow Monday May 20th.

The meeting is free for current AASEW members and $25 per person for those who are not members, but at $99 a year who would be in this industry and not be a member.

When: Monday, May 20th, 2013 at 7:00 p.m.

Where: The Best Western, 1005 S. Moorland Road, Brookfield 53005

More info about the meeting and the Association at:

http://apartmentassoc.org

Tom Ortell was very active in many aspects of our industry.

He was a landlord, but so much more.  He cofounded of Milwaukee Asbestos & Lead Information Center where many of us and our crews received lead abatement training. He was the DILHR weatherization inspector  of choice for many owners. (Key Inspections)

For many years he has been lead faculty for Milwaukee Area Technical College’s  Real Estate and Property Management programs

His loss leaves yet another hole in our community.

In a previous post on foreclosures in Milwaukee I mentioned that rental owners spend $90 – 120 million per year in repairs and renovations, to which a reader expands upon by asking what do rental owners pay in property taxes per year.  I thought that an interesting and relevant question so we dug into it a bit.

Rental property owners in Milwaukee pay about $266 million per year in property taxes, another $26 million or so in special assessments, which could be everything from fire inspections to alley and sidewalk repairs to so called reinspection fees. The includes owner occupied properties with a rental unit, as they are landlords as well.

As a side note I was surprised to see how many properties that were clearly investor owned, the owner address was not the same as the property address or the owner is a LLC or corp,  were listed by the city as owner occupied.

Rental owners also pay somewhere around $32 million a year in sewer and water plus associated fees.  This number is much harder to arrive at and may be higher than this. I simply took the gross amount and divided it by number of dwelling units.

One very interesting factoid that I stumbled across while searching for the answer is the number of properties actually taken by the city through tax foreclosure was 745 in 2012, a very significant 60% increase over the 464 taken in 2011.  The treasurer is budgeting even a slightly greater number for 2013.  1152 properties entered the city tax foreclosure pipeline in 2012.  Source: Milwaukee City Treasurer Dept Metrics

Per the U.S. Census around 54.5% of all dwelling units in the city are rentals.  City assessment data puts that number higher, around 64%. The city publicly claims higher owner occupancy as they report the percentage of residential parcels rather than units that are owner occupied.  The census puts vacant housing units at 11.3% with rental vacancies at 4.2% 302,000 people in Milwaukee are tenants. Source: U.S. Census Fact Finder

What can be done collectively to improve our businesses, save costs or generate additional revenue?

I will post my in-depth thoughts on these topics over the next week or so as time permits me to clean my notes into coherent sentences. If any of the topics interest you comment here or email me at: Tim@ApartmentsMilwaukee.com

• Reduce Maintenance Costs
• Become better at sharing our collective knowledge
• Group purchase of a distressed block or two
• IT meets real estate

Reduce Maintenance Costs

Improve supply sourcing: ‘How can we use our collective shopping experiences and buying power to improve our bottom-line on a daily basis in 2013?’  More thoughts on better material sourcing.

More effective Maintenance Labor/Contractors/Services The ability to have skilled, cost effective maintenance available on demand is typically a missing element for most small to medium sized owners. Read more on  effective maintenance labor solutions that could change our industry.

Become better at sharing our collective knowledge

The ApartmentAssoc@YahooGroups.com is good beginning. But the idea could be greatly expanded upon. Perhaps a Wikipedia style “Best Practices” Guide* for Milwaukee rental owners. It would include everything that a property manager may run into.

Similarly a Mastermind Group could reap benefits if the right people were involved. Here is an overview of the Mastermind concept.

Also look at what groups like StartUpMKE are doing in the tech field.  Read my thoughts on increasing the sharing of knowledge.

Group purchase of a distressed block or two

Choose a very small geo area of Milwaukee. Think something on the terms of both sides of a block or two maybe three at the max. It should be depressed, as in make Detroit look like a nice place to live, depressed.

Apologizes to Detroit, but many people know of Detroit’s challenges and fewer of the challenges of Milwaukee.

Yes, unfortunately, there are many areas like this in Milwaukee and the numbers are increasing as foreclosures work their way through the system.

The plan would be to assemble a group of investors and turn the area for fun and profit. My  expanded thoughts on group purchasing of a distressed block.

Tech meets real estate

There certainly huge opportunities for software/web solutions to things that cause frustrations for owners and perhaps tenants.

Some ideas:

• Setting rents to market. How much are you losing because your rents are too low or how much have you lost due to your rents being too high and your vacancies languish? Me, too. ;-(
• Property acquisition tools Look at what sites like http://www.spotproperty.com/ are doing elsewhere, but not here.
• Vacancy filling Craig’s List used to work, but now there is too much spam and fraud. What about a system where the tenants need to prequalify before actually applying. While pre qualifying by an individual owner may be problematic from a fair housing standpoint, a proper third party system could work.
• Custom Management tools My company’s secret sauce is our highly customized management software. Nearly every task is one or two clicks and the computer makes many mundane management decisions on its own.
• Put your solution here

You can read my thoughts on tech and real estate here

Conclusion

What? This is not enough ideas for one year? Then post yours on the comments!

Shy, then email directly at: Tim@ApartmentsMilwaukee.com either for my review only or to repost anonymously as you direct.

November 5th, 2011 was a very sad day, as our industry has lost yet another one of its few superstars, Attorney Joe Peters.  I met joe twenty plus years ago at an apartment association meeting. I don’t think he ever missed more than a handful of those meetings in the ensuing years, but now we will all deeply miss him. 

What Joe taught me:  Continue reading »

I wish to throw this question out for discussion:

What is the most important thing you know?

We all come from different backgrounds and have had different experiences.  Individually we know what we know, but no more.

Collectively we could be pretty smart and achieve more.  That is part of the power of a discussion list like the list I moderate ApartmentAssoc or the ones I participate on such as MadisonApartmentOwners, LandlordAssociationOrg or the hundreds of other groups on Yahoo Groups or Google Groups.  You ask a question and get an answer.

But what about the question that you do not even know you should ask?  So go ahead add what you think is the most important thing you have learned about landlording to the comment section.

[Note I am importing replies from the above Yahoo Groups into this comment section for all to read]

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