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2014 Emerging Trends

housing trendsPredicting the future is not one of the items listed under my skill set, so I turn to real estate articles and reports to find out what the expectations are for real estate trends in 2014. PricewaterhouseCoopers LLC recently published a 100-page report (Emerging Trends in Real Estate 2014) that offered some insight. For those of you who don’t want to read 100 pages of analytical information, I will share a few key points.

In a number of markets hit particularly hard by the bursting of the housing bubble investors have purchased distressed homes in bulk over the past several years. The report mentions this has helped to stabilize these markets. It commented that, in most markets, activity has reached a level that is supportive of economic growth.

As far as future prospects, the sentiment is that multi-family and build-to-suit opportunities have dominated development over the past few years and this could be the year for industrial development. You will probably see redevelopment in the office sector as owners try to reposition to meet changing tenant demands. Those using office spaces are looking for less space per worker while they reconfigure for more collaboration. Retailers look for urban solutions to serve city customers more efficiently. Fast delivery times are a concern for all businesses. The trend for multifamily will include less space per unit but more space in the common areas.

Speaking of changes, the Y-generation is likely to have the most singular dominant impact on trends for years to come. They are different than previous generations in the ways they live, work and play. They will be more urban and less suburban. They won’t drive as much but are definitely mobile. They will shape commercial real estate by wanting in-town rental housing and causing companies they do business with to want to locate close to ensure same-day delivery from online retailers. Add the baby-boomers to the mix as they want to sell their homes and have the same amenities as gen Y (but with the added feature of convenient health care).

They noted that investment funds, both debt and equity capital, will be on the rise. While the sources are not new, equity is expected to increase the most from foreign investors and the favorite for increases in debt capital are in the commercial mortgage-backed securities (CMBS) market. It seems the players are getting more comfortable with the improving real estate market conditions.

So, fundamental asset management will be the key to improving cash flow and commercial property performance as interest rates rise just moderately. Income growth is expected to come from higher occupancies and higher rent. Be sure to keep in mind the changing customer base as you choose locations and reconfigure properties to meet the demands of your market.


Renewing the lease

lease agreementsWhen should you start the renewal process? BEFORE your resident moves in! In this age of technical correspondence (emails, text messages, etc.) the thing that is missing is human interaction. Developing rapport is the number one goal of most salespeople, and the lack of it costs businesses profits in the end.

Stop to think… stop to thank! When someone takes the time to tour one of your properties and consider it for their housing needs, do you THANK them for visiting? Not just verbally, that’s just good manners. Do you write, sign and send a short ‘thank you’ note to let them know you appreciate them stopping by? That one personal act can tip the decision scales in your favor if they are considering a number of properties that are otherwise similar (and maybe less expensive).

After they have chosen your property over the competition, moved in and settled down, do you send them a welcome letter pointing out helpful or convenient points about the property or area? It is another touch point to create a positive rapport. In another few months, you may want to send something that is applicable for the season to have another positive communication. Shortly you will be asking for an increase in rents, you don’t want the last contact you had to be the one where you took their deposit and gave them the keys.

The renewal process should begin with efforts to create positive contacts from the start. Thank them, welcome them, ask for referrals if you have other rentals available, provide information about local interests/special deals, and then perhaps an early renewal bonus for a 1-year renewal. Time the last positive communication so it is at least 30-days before your rent increase/renewal letter. More about that next time!

Selling the Lease

groupSelling the Lease by Jim Aviza

With so many options available to renters and so many properties that are very similar, how can you get them to choose you over the competition?  Appeal to the emotional aspect of their housing needs.  Selecting a home is more than a matter of economics to renters.  As investors, we know how to determine market values for rental and purchases.  We’ve done our study of what people are willing to pay based on square footage, features, locations, amenities and so on.  But the one thing that can tip the scale in our favor is to provide an answer to their question, “Will I be happy here?”

From the start of working with your prospective renter, you should be building rapport.  Find out what their “triggers” are and use those to anchor them to your property.  Do they like sports?  There’s a great gym (or park) right around the corner.  Do they like cultural events?  Point out the theaters, galleries, museums, and other points of interest in the area.  Are they new to the area?  Talk about the wonderful people in the building, in the community or organizations they may want to join.  Do they like to cook or entertain?  Point out the counter space for food preparation, the openness of the floor plan for hosting gatherings.  Find out what their interests are and make it a point to turn features of your property into benefits they can envision as part of their future in that particular home.

They will also get a sense that you are interested in their happiness and that will carry over to liking you as well.  When people like you, they do business with you!   Remember to keep your relationship professional.  Do not blur the line between friends and a professional relationship.  Be personable, find out what they want and then help them see how your property suits their needs above and beyond the price, location and condition.

Creating a Lease

Rental Lease Agreement

Do You Know How to Create a Lease?

You found people to rent your property, and you had them fill out your Lease Application. They met your criteria, and the verifications all checked out.  Now it’s time to present the Lease or Rental Agreement.  In some states, rental agreements with a term of 12-months or more have to be in writing in order to be enforceable.  Does that mean it’s possible to forgo the written agreement for terms less than one year?  Possible, yes.  Prudent, no!

If you and the tenant have a verbal agreement and each remembers and holds up to what they agreed to, there would not be a problem.  However, without the signed, written terms, how would either party prove what was agreed to when standing in front of a judge over a dispute?  In the absence of a written agreement, a judge would decide based on landlord-tenant law applicable in that jurisdiction.

Having a lease provides written permission to manage the relationship and expectations that both parties agree to abide by.  If there is a dispute, a judge would be able to interpret the intentions of both parties by what is contained in the signed contract.  In addition to stating terms about the rental amount, the length of the rental term and how terminations and renewals will be handled, the lease agreement also outlines which utilities are included/excluded, what the policy is regarding things like subletting, adding occupants, keeping pets and having renters’ insurance. The lease tells us under what conditions security deposits will be returned or what may be deducted.  It should stipulate what happens if a check bounces, if rent is habitually late, and much more.

If a tenant is not acting in harmony with what they agreed to in the lease, the terms of the lease can be quoted in warning letters to remind them it is a condition they agreed to from the start.  This can be a helpful management tool when you would rather get their compliance and not seek an eviction.  If it is an eviction you are seeking, the lease agreement provides the means for pointing out the violations and the basis for granting the eviction.

Standard leases may also require riders (attachments of additional terms) for things like lead paint disclosures for properties built before 1978, or an addendum such as a garage rental or an option to purchase the property. Anything that spells out the additional terms required for the topic being added is a rider.

It is a good idea for your legal team to review what you intend to use as standard documents to be sure they protect your interests as a landlord and comply with any state or local laws.  Check your state’s attorney general website for information about landlord-tenant laws.  There is usually a booklet available for tenants.  Be sure you are familiar with it too. If you are not sure about the meaning of something you find there, ask your legal team for clarification.

Managing your landlord-tenant relationship by spelling out the agreement in advance with a written lease is a wise investment of your time for the success of your real estate business.

Jim Aviza
Rich Dad Education Elite Training Property Management Course Instructor

Creating Lease Applications

Lease Applications

Lease Applications

No doubt, if you ask landlords to name a key step in their rental process, one of the top answers would be screening tenants.  If you are using a credit report service, it is easy enough to run a report and get a credit score. But, is that all there is to screening?  What does it mean when your report comes back with a 680 credit score?

Credit scores are just one part of the screening process that attempts to predict the risk that you will have a late payment from that applicant.  While timely payments are certainly an important part of the mix, it’s not the only thing that matters.  You should also verify their past rental experiences.

  • Do they complete their lease obligations or do they break leases, leaving landlords to replace them much sooner than expected?
  • Worse yet, were they required to leave (evicted) for non-payment or for breaking other agreements within the lease (objectionable tenancy)?
  • If they don’t want you to know something, is this something they will likely volunteer on the application without being asked?  Probably not.  It is up to you to ask it on your application and then speak to someone who would know from their previous addresses.
  • Do they get along with neighbors?
  • Did they have any pets?  If they did, are they bringing them to your property?
  • Do you even allow pets?  If so, do you charge extra for the rent or deposit? (Excluding pets allowed in accordance with Fair Housing laws.)

As a landlord, spending a little time getting the right renter can save you a lot of time trying to get the wrong one out!

You should be looking for someone who:

  1. Pays the rent on time
  2. Respects your property
  3. Respects the neighbors

Set your rental criteria to meet these standards and verify the information to be sure you are on the right track for a successful tenancy.

In addition to being sure the applicant has the legal right to be in the U.S. for the duration of the rental agreement, make sure that they have the ability to read, understand and agree to the terms within the agreement (which may be done with an interpreter if necessary).  There are some standards that you may want to incorporate in a written format to be displayed at your rental office or as a handy reference when meeting with rental candidates.  Be sure to display Fair Housing compliance statements as well.

History of timely payments.   You want someone who can prove they have a habit of paying bills on time.  If a credit report does not include a score but shows there is a history with no late payments or judgments for accounts that are closely related to housing or living expenses (i.e., utilities, cell phones), this is a good sign.  Proof of timely payments could be verified directly with the account if a credit report is not an option.  If rental managers are unable to verify more than the rental dates, then ask to see cancelled checks where the date cleared is within a few days of the rental due date.

Verifiable income / employment.  You will want candidates to have a history of employment with gross income equal to 3 to 4 times the amount of rent or liquid assets that will be able to cover the annual amount they will owe.  Require proof of the income – not just a statement that it is so on the application.

Rental experience.  Verify with landlords. Did they fulfill their lease terms?  Did they leave any damages or have problems with any neighbors?  You may find it is easier to get this kind of information from individual owners as opposed to apartment managers.  Try to appeal to them by asking as a professional courtesy, “Could you tell me would you rent to them again?”  If you can’t get a verbal or written recommendation, you may want to consider this as a reason to deny an application if you’re getting other red flags such as missing information.

Occupancy Standards.  Check with your local zoning code.  You may want to limit occupancy to recommended standards of two people per bedroom.  A room that is a den (or a closet) by your local code would not count as a means to add two more people.  You may want to consider the exception of an infant/child up to 16-months-old for a one-bedroom.  Don’t forget that additional people mean additional wear and more water/sewer expenses which you may be responsible for if they are not metered and billed directly to your tenant.

Pets.  Will you be allowing pets?  Studies show you may be severely limiting the number of rental candidates if you do not allow pets.  The key is to select from responsible pet owners who understand that having a pet is a privilege that comes with additional responsibilities.

The Humane Society offers some helpful resources for managing pet-friendly properties:

Give your rental criteria some thought. After you have decided what standards you will use, apply them across the board to avoid issues with Fair Housing.  Be fair, but firm in your dealings and teach those who act as agents on your behalf to do the same. You can read previous blogs on Fair Housing for more information.

Jim Aviza
Rich Dad Education Elite Training Property Management Course Instructor

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