AvenueWest 2013 – Top 50 Real Estate Investment Opinion Makers & Market Leaders.

Personal Real Estate Investor Magazine “Building Wealth Through Property Investment”  this month honored AvenueWest as one of the top leaders in the United States along with HomeVestors and Real Property Management.

12 Tips for Reducing Your Rental Management Liability

I spoke to CRB this month – take a look…

http://www.crb.com/resources/reb/mar-apr13/mar-apr13/index.html

16 Mar/Apr 2013 http://www.crb.com

12 Tips for Reducing Your Rental Management Liability

 Adding rental and property management services can boost your profitability. Be sure to protect those gains with these 12 risk-management ideas.

By G.M. Filisko

It can be a wise move to broaden your business base by expanding the services your brokerage offers, and handling rentals and property management is a natural segment into which to expand.

That’s especially true given market changes in the past few years. “For the past couple of years, we’ve seen more first-time landlords—people who couldn’t sell their home and wouldn’t have ordinarily been landlords,” explains T.J. Rubin, managing broker of Fulton Grace Realty in Chicago, a leasing, management, and brokerage company. “We’ve also seen a growth in single- unit condo investors. Maybe they’ve seen a foreclosure and bought it intending to rent it out. Finally, there’s been a trend of more luxury units being rented.”

Rubin’s experience is being repeated throughout the country, and all those rental markets present opportunities for brokers. However, rental management isn’t hazard-free. Without savvy planning and controls, you can expose your company to liability that could wipe out any added profitability you generate. Here are 12 great ideas to safeguard your company when you offer rental management.

1. Create a separate legal entity.

Operate your rental management business out of a company separate from your brokerage, advises lawyer Bruce Ailion, ABR®, CRS®, CRBsm, e-PRO®. Ailion is an associate broker
at RE/MAX Greater Atlanta in Marietta, Ga. However, through Success Real Estate Brokers, at which he’s the principal broker, Ailion manages about 110 rental units.

“It is easier to do the management though a separate company,” he says. “Our structure was done for accounting convenience. But it’s also a good strategy for minimizing liability.”

2. Don’t manage a property here and there.

“Don’t just rent out a property as a favor
to someone,” says Kimberly Smith, CEO
of CorporateHousingbyOwner.com and Avenue West Global Franchise, a Denver-area brokerage that manages furnished residential units and trains franchisees to do the same. “Make sure rentals and management are part
of your core business model. Unless you know who to connect with—like the most appropriate insurance vendors—you’ll fail.”

“You also need to know your local laws,” adds Smith. “They’ll dictate whether you need to collect use taxes on rentals; whether owners have to provide a written notice within a certain period of time to keep any of a tenant’s deposit, along with what charges can be deducted and not; whether you have to keep security deposits in escrow; and when and how in your marketing you must disclose you’re a broker. Don’t dabble in property management because there are penalties if you get those things wrong.”

3. Train your agents before they handle rentals.

“Careless agents not following procedures is the quickest way to get in trouble,” says Rubin. “We have a property management handbook to make sure everyone learns our processes and procedures. But agents also have to jump right in. So we have junior managers mirror senior managers. Then the junior managers get their own accounts while still having their mentor’s help. Finally, they become proficient and operate independently.”

4. Properly screen all potential landlord clients

“When we’re managing properties, if there’s a lawsuit for premises liability, we’ll be named as a defendant in addition to the owner,” explains Melania Mirzakhanian, a lawyer and director of operations at Tomea Inc., a full-service brokerage in San Diego with about a third of its business from property management. “So we do credit and criminal background checks on potential landlord clients. I also like to get a feel for their character. I really like one-on- one and face-to-face meetings, but a lot of our clients live out of state and have a second home here. In those cases, we do a lot on the phone and through Skype. If we find out owners aren’t honest with us about their financial situation— say they’ve filed for bankruptcy or their property’s in foreclosure and they haven’t told us—that’s a red flag.”

Another red flag? A too-involved owner. “I need a property and an owner I can represent,” says Smith. “A lot of times, owners are too hands on, saying things like, ‘I’m going to pop over every other week and check the backyard.’ A key benefit every tenant is entitled to is the quiet enjoyment of the property; that can be lost if an owner is too invested in it. I deal
with relocation clients, and one Fortune 500 company may be leasing 10 of my units. If one landlord messes things up, it could mess things up with all 10 units.”

One additional point on owners: Be sure they have the authority to do what they’re agreeing to do. “In one situation, it turned out there were several owners,” says Smith. “I was dealing with one owner who hadn’t properly disclosed the situation to the rest. It got messy fast.
Verify the potential client owns the property. If there’s more than one owner, understand that dynamic, and make sure the contract reflects their consent.”

5. Personally inspect properties before you accept the business.

“We inspect every property, and it’s mostly about the safety of the premises,” says Mirzakhanian. “If a hazardous situation needs to be repaired, my legal background kicks in. We tell the owner what needs to be fixed before we can rent out the property. We won’t let tenants move in with a landlord’s promise to fix that type of thing in a month or two. Pools are also a big issue. We need to be sure they’re maintained and don’t have hazards that can harm children.

6. Be sure to have solid contracts.

Absolutely have a management contract with clients. “Whatever we ask the landlord to do, we put that in the management contract so it’s clear,” says Mirzakhanian. “We also ask landlords to indemnify us for all the things we’ve listed in the contract that need to be repaired. I don’t think we should be liable for those problems.”

Always use written leases, and make sure they’re kosher in your state. “Some states don’t allow you to change their lease forms,” says Smith. “Also, be sure to put any discussions with tenants and owners in writing. One mistake I made was when a tenant asked to leave early and have new tenants take over. Over the phone, the owner agreed. But I didn’t get that in writing, and the owner changed his mind overnight. Get all changes to leases in writing.”

7. Get and require applicable insurance.

Be sure your company has professional and general liability insurance, and ask your clients to include your company on their policy. “In our contracts, we require owners to name us
as an additional insured on their homeowners or landlord’s business policy,” says Rubin. “If people get hurt at the property, they know only us as the landlord, and they’ll sue us.”

8. Communicate with clients and tenants the way they prefer.

“You can reduce liability by learning from your clients how they want to communicate,” says Ailion. “Some want in-person meetings, some want to be contacted by phone, others only

by e-mail or text. Some want regular updates, others want a quarterly call. Some are annoyed if a voice mail isn’t returned within two
hours while, for others, the next day is fine. Learning what the client’s communication preferences are and meeting those expectations reduces liability.”

Do the same with tenants. “A short time ago we had a tenant who was recently discharged from active duty in Afghanistan,” adds Ailion. “We were told by his mother that he had PTSD and anger management issues. He required special handling. While we had some tense moments, understanding how he needed to be responded to and making the extra effort to accommodate his lower ability to tolerate inconvenience and delay allowed us to keep him happy as a tenant and the property leased.”

9. Track business to identify your market’s high-risk clients.

“When you’re first trying to get business, you take any business you can,” says Rubin. “After
a while, you start to spot trickier situations that cost you more time and money and as a result possibly greater liability. We started to limit our service areas because we found that multi-unit buildings further outside our core market are tougher for us to manage. It’s harder to respond to maintenance requests, which increases
our liability.

“We’re also very cautious of managing buildings that haven’t been well run before the owner approaches us,” adds Rubin. “Maybe they don’t enforce rent requirements or late fees, and we might have to begin numerous eviction proceedings. We’ve inherited improperly screened tenants, and when we tried to evict, they argued over things previous managers said that we had no idea about. Or maybe buildings aren’t in great shape or there are code violations. It’s sometimes impossible for us to bring a property up to code and make sure the tenants are perfect. If we step into a situation like that, we could get sued because of some dangerous aspect of the property.”

How can Rubin tell the status of a building’s management? “We look at whether we have contact information for tenants and whether clients are aware of the building’s situation. They can’t hire us expecting a 180-degree turnaround in a few days. Also, there are costs to turning a building around. We’ve managed for owners who are cash strapped and been handcuffed. That reflects poorly on us.”

10. Identify a visible point person for owners and tenants.

“Having a strong customer service person as a point of contact for owners and tenants goes a long way to reducing liability,” says Ailion. “Both owners and tenants want to reach someone who can hear and begin a resolution to their problem.”

Also remember that problems don’t go away the longer they’re not addressed. “A small issue or problem grows over time,” adds Ailion.
“If a mistake has been made, acknowledging, addressing, and resolving it goes a lot further than ignoring it, avoiding it, denying it, or making excuses. How we make a bad decision right makes all the difference. Those I work with know they can make a decision that binds the company, and even if I wouldn’t have made the same decision, I’ll support theirs. Ultimately, a happy client is more important than a few dollars.”

11. Network with others in the field.

Whether it’s through NAR’s Institute
of Real Estate Management or another professional group, networking expands your knowledge base. “The most significant decision I made to reduce liability was joining the National Association of Residential Property Managers, attending
its meetings, and taking its training,” says Ailion. “It’s a group of seasoned professionals willing to train and share their knowledge and experience.”

12. Remember who pays your bills—and that it may not matter.

“It’s important to keep in mind that property management is an odd industry from the standpoint of the definition of a client,” says Rubin. “Technically, it’s the property owners who pay your bills. But you also need tenants to keep your business going. Essentially, you may need to learn to become an effective mediator between the two.”

G.M. Filisko is a lawyer and freelance writer who specializes in real estate, legal, business, and personal finance topics.

 

Welcome to International Women’s Day

Welcome to International Women’s Day

Take a minute and make a difference – some of my favorites ClinicaVerde.org (Nicaragua), Arzu (Afganistan), DhakaWeaves.org (Nepal), AfricaAid.com (Africa)

Is your vacation rental legal?

http://www.usatoday.com/story/dispatches/2013/02/28/vacation-rentals-airbnb-homeaway-regulation/1950797/

Is your vacation rental legal?

Fueled by the housing bust and embraced by cost-conscious, Web-savvy travelers, short-term vacation rentals have been booming from Manhattan to Maui. But so has controversy, as irate neighbors complain about the negative impact of transients and traditional lodgings say inconsistent local laws put them at a competitive disadvantage.

Now, a coalition of major players in the short-term (less than 30 consecutive days) rental market — Airbnb, FlipKey, HomeAway and TripAdvisor — have joined forces to influence cities’ attempts to regulate or ban the trend. Their new website, the Short Term Rental Advocacy Center, spotlights current legislation in 10 U.S. destinations. Though aimed primarily at policy makers and owners, it also lets would-be renters know the rules surrounding their stays.

http://www.stradvocacy.org/

 

Personal Real Estate Investor Magazine – do you subscribe?

PREI is America’s best selling investment, business and finance magazine for the real estate investor and they take their role seriously as the Emerging Voice for this Emerging Industry and their responsibility to report on all aspects of its development. PREI has assembled some of the best minds in the business as Personal Real Estate Investor Magazine’s Board of Advisers. These include respected leaders and experts in all areas of the industry who understand the keys to success for individual investors and for our industry. http://personalrealestateinvestormag.com/

Current Issue – Pg 66

“An Under-Appreciated Opportunity, Corporate Rentals”

“Most investor would love to have an extra $5,000 to $10,000 in their pocket at the end of the year,” says Kimberly Smith.  “The question to individual real estate investors is: Are you maximizing your income potential by adding some corporate housing units to your portfolio?  You, as a real estate person, can’t afford not to have corporate housing in your vocabulary.” …Take a look for the rest of the article

 

 

 

Capitalizing on ‘stealth lodging’ niche Connecting homeowners with people seeking short-term rentals is a $2.5B industry

BY STEVE BERGSMAN, FRIDAY, FEBRUARY 8, 2013.

Inman News®

After Todd Hunter and his partner acquired a West Hollywood, Calif., property with a guest house in the back, they had to decide what to do with the extra living space.

The most obvious choice was to turn it into a rental, but a neighbor mentioned Corporate Housing by Owner, a website that connects private homeowners with people seeking short-term rentals such as traveling executives or actors.

“We priced it out both ways, as an unfurnished rental and as a fully furnished monthly with higher-end design and appliances,” Hunter said. “We live in a place people want to come to, so we decided to try to go the corporate housing route. If it didn’t work, we figured we could always take out the furniture and make it a full rental.”

The space was nicely decorated, professional photographs were taken, and the property was posted on Corporate Housing by Owner’s website on a Wednesday. That afternoon, Hunter got his first query. A second followed the next day.

Hunter decided to go with the first query from a mother and daughter who were coming to Los Angeles on a job hunt. They were moved in by the next Saturday. The rental’s listing price of $2,800 a month was much higher than what a standard rental at less than $2,000 a month would have brought in, Hunter said.

“We might have been a bit lucky, posted on Wednesday and a move-in by Saturday,” Hunter said, “but we were still very pleased.”

Kimberly Smith, co-founder and CEO of Corporate Housing by Owner (CHBO), calls corporate housing “stealth lodging” because few people are aware of it until they need the services, even though it produces $2.5 billion to $2.9 billion a year in gross rents.

While anyone, including a mother and daughter looking for employment in a new city, can use short-term residential housing, the business is called corporate housing because residences in the programs are most frequently used by executives and other businesspeople on temporary assignment in another city or going through a corporate relocation.

Some of the many users of corporate housing include visiting nurses, baseball players in spring training, Cirque du Soleil performers on an extended performance schedule in one city, and snowbirds.

From an ownership point of view, corporate housing was always a kind of corporate business in that it was generally dominated by big firms, many of which were major apartment owners and managers. For example, a company like Equity Residential, the largest apartment owner in the country, boasted a corporate housing division that owned 3,000 apartments. The division was eventually sold off.

If you, as an owner of a residence, either condo or single-family, were interested in using it as corporate housing, it was very difficult to get that message out to potential renters. That was until Smith and friends developed CHBO.

“CHBO is a platform where individual owners can connect directly with tenants,” Smith explained. “What makes us different from, say, a Craigslist, is that we have developed relations with the Employee Relations Council, with insurance companies, and with people who deal with housing needs on a regular basis. So, you are not just sticking a rental property out there in the universe by itself.”

CHBO allows a homeowner with a rental to have a repetitive, rental relationship with a New York businessman, even though the homeowner might live in a private home in suburban Atlanta or a high-rise in Los Angeles.

“The other thing about CHBO is that we took everything that we could think of that might be needed by renters or homeowners and added it to the website,” Smith said. “There is, for example, a 55-page booklet that tells you what you need: How many forks does a typical business traveler expect? What do I do with the mail, etc.? In addition, we run an annual survey that produces a report so those interested in the business can, for example, see how long tenants generally rent.”

Corporate housing today consists of about 80,000 residential properties across the country, and if you throw extended-stay hotels into the mix, that’s another 300,000 rental units.

Typical corporate housing is like a commodity product, Smith said. “One company goes and leases a bunch of apartments. The company either rents or buys furniture and then leases out the apartments to the consumer for shorter periods of time (than an apartment rental).”

That’s the known factor, as the 80,000 properties represent the established or company-serviced part of the industry, which is designed around apartments. There is no data on the private residences, but Smith, who knows the industry better than almost anyone, guesses there are another 50,000 private residences that produce about $1 billion in gross rent revenue.

In a typical corporate housing lease, clients stay 80 days. Established companies report that clients stay, on average, 100 days. “About 14 percent of the people who are booking their property through CHBO are doing so for a year or longer,” Smith said.

Smith, a political science major with a specialty in Asian studies, through an internship ended up at a corporate housing company in San Francisco. She stayed for four years and then went to AvenueWest Corporate Housing in Denver.

In 2006, Smith and partners launched CHBO.

AvenueWest wasn’t truly an expandable concept, she said. “It was impossible to have a property management company in every state, especially when it was targeting high-end executives in high-end real estate.”

Smith sensed there was a need for individual homeowners in the market, or, as she said, the “by-owner segment,” and there was a need for other tenants not being served by companies targeting the high-end corporate market.

“I knew there were tenants out there not being serviced,” she said. “If your house burns down (or is washed away in a Hurricane called Sandy!), you don’t have the resources to find a home to rent. Well, there may be someone out there who has an empty house because he had to relocate. There just needed to be a platform to facilitate the two getting together.”

Steve Bergsman is a freelance writer in Arizona and author of several books. His latest book, “The Death of Johnny Ace,” is now available for sale on Amazon.

2012 by Owner Corporate Housing Report

2012 by Owner Corporate Housing Report

Welcome to 2013! In the last year, a lot has changed in the corporate housing and residential rental world. We’ve experienced:

  • Corporate housing mergers and acquisitions.
  • New laws regulating and prohibiting vacation rentals.
  • Identity challenges in the corporate housing industry.
  • A still uncertain economic climate.

I believe we will continue to see more of these changes in the months to come.

To help you navigate these changes with confidence, we’re excited to share our 2012 Annual Report―a summary of the results from our annual “By Owner” Corporate Housing Survey. This is the fourth year of our survey and annual report. In the pages to follow, you’ll be able to draw upon the latest data, as well as comparisons and trends from recent years.

Executive Summary

Survey Respondents

Responses were received from property owners across the United States (36 states and the District of Columbia), Canada, and Panama. The highest response rate came from property owners in California, followed by Colorado.

The top reason for being a corporate housing landlord continues to be the long-term investment (50%). That’s up from 47% in 2011, but it’s still below the peak of 55% in 2009.

Outlook for 2013

On a positive note, 36% of respondents predict that 2013 will be better and more profitable than 2012—a similar percentage to 2011. However, 10% of respondents believe that 2013 will be less profitable, which is a notable increase from the 5.2% who had this outlook in 2011. In addition, those who are “not sure” about the future rose from 14.7% in 2011 to 18.4% in 2012.

Profitability

Despite the cautious outlook described above, 92% of respondents report that their properties were profitable or breakeven in 2012. Overall, the responses were nearly same from 2011 to 2012, with property owners noting a slight increase in profitability in 2012.

Rental Rates and Discounts

60.4% of respondents say they offered the same rental rates in 2012 as they did in 2011. The great news is that 33.1% reported that they did raise their rates in 2012, and only 6.4% of respondents lowered their rates in 2012. These results are significant jumps from 2011 when 16.1% people reported lowering their rates.

Compared to our 2011 survey results, the largest increases in rental rates were for 1 bedroom, 2 bedroom, and 4 bedroom properties. The rates included later in this report are at their highest numbers since we first started collecting this data. 66% of respondents say they offer discounts for longer-term leases. Nearly half of the respondents say they offer rental rate discounts of 10% to 14% for longer-term stays.

Corporate Housing Terminology

72% of respondents list their rentals as “corporate housing,” followed by 51% who list their properties as a “furnished rental.”  The most interesting trend that has emerged in the last two years is a 13% drop in those who refer to their properties as “vacation rentals.” This is most likely due to the increase in regulation and taxation of the less than 30-day rental segment, and it’s a trend we will continue to monitor.

Property Management

80% of respondents say they do all their property management themselves. This is a decrease from the last two years. In the last year, we have seen an increase in the number of respondents seeking support from friends and family, as well as from real estate agents.

New! Property Management Software

The majority of respondents (55%) say they do not use any form of property management software to manage their rental property. 26% use basic spreadsheets, followed by 18% who use accounting software, such as QuickBooks™. 

New! Rental Documents

We asked respondents, where did you get your rental documents (such as leases)? The most (38%) say they found their documents on the Internet, followed by 34% who say they wrote their own documents. Only 16% say they paid an attorney to have their documents drafted.

New! Leasing Trends

Based on our experience full-service, corporate housing companies, renters tour properties in advance only 30% of the time. In contrast, in the “by owner” corporate housing segment, property owners say they provide tours to renters 44% of the time. 71% of respondents say email is the primary way they communicate with their potential renters. 46% of property owners say they meet all potential renters face-to-face.

Investment Real Estate Trends

We asked respondents, do you plan on buying more investment real estate? For the third year in a row, there are more “Yes” responses (40%) than “No” responses (17%). Over the last three years, we’ve seen a steady decrease in the “No, I’m done with real estate” response.

Property Size / Number of Bedrooms

The highest percentage of “by owner” rentals continue to be two-bedrooms (36%); though, this is a 5% decrease from 2011. 33% of respondents say their rental properties have three bedrooms or more. In contrast, in the full-service, corporate housing industry, the majority of rentals are one-bedrooms (51%). The availability of additional bedrooms makes the “by owner” corporate housing segment an attractive option to renters.

Property Type

Whereas the majority of corporate rentals in the full-service corporate housing industry are apartments, only 12% of “by owner” rental properties are apartments, according to survey results. Single-family homes are the largest percentage of “by owner” properties (25%) accounted for in this survey, followed closely by low-rise condominiums (23%).

Property Locations

The highest numbers of private corporate rentals are in suburban areas on residential streets (35%), followed by outer urban areas (27%) and central urban areas (23%).

Inclusions in a Furnished Rental

While the majority of private owners offer tenants a fully stocked kitchen (87.3%―up almost 10% over 2011), TV (85.1%), bed linens (84.5%) and towels (82.3%), there is much greater variation―and opportunity for competitive advantage – in the technology, maid services and perks that are available in each rental property. For the first time, we asked owners whether they offer a “Community Activity Pass” to renters, and 16.1% say they did.

Corporate Housing Tenants

Corporate housing tenants continue to be relatively “painless” tenants. In 2012, more than 90% of respondents say they had a positive experience with their corporate housing tenants. This percentage is consistent with the results from 2011.

Types of Renters

In 2012, the top three reasons for rentals were: business assignments (67%), relocations (43%), and family (33%). In general, the corporate housing renter pool remains consistent. There was a decrease in the number of people renting due to relocations, snow birds, and vacations. This year we added a new renter category: “temporary lodging due to a home remodel.” 23% of respondents say they had that type of renter during the year.

Length of Stay

63% of respondents say their tenants stayed an average or three months or more.

26% of respondents say they are willing to rent their properties for time periods of less than one month—down from 30% in 2011. This year, as the result of city legislation against less than 30 day stays (such as in New York City and Chicago), we added a question about who is setting limits on the minimum length of stay allowed. Only 8% of respondents say their city regulates their minimum length of stay. 22% say they are regulated by the rules of the community or the building in which the property is located.

Security Deposits and Insurance

82% of “by owner” landlords say they require some form of a refundable security deposit in 2012—down from 89% in 2011. In a growing trend, 8% of respondents say they require Accidental Rental Damage Insurance (ARDI) as an alternative to a security deposit.

Credit and Background Checks

In 2012, 28% of respondents say “yes,” they always run credit checks on potential tenants—a number that appears to be holding steady with previous years’ results. A larger amount, 30%, say ”no,” they never run reports, which also is consistent with previous years.

Credit Cards

Approximately three out of five of respondents say they accept some form of credit card payment from their renters. 2012 is the first year that Visa/MasterCard is more popular as a credit card option (at 34%) than PayPal (at 33%).

Pets and Pet Security Deposits

Many long-term business travelers are arriving with pets. 48% of survey respondents say they accept some type of pet. Of those who accept pets, 62% say they take pets because it gets their properties rented. The most common rental period for renters with pets is one to three months.

In 2012, the average, non-refundable, one-time pet fee property owners charged was $253. The average pet refundable deposit is $344.

Marketing Trends, Resources and Results

In 2012, 44% of respondents say they spent $500 or more on their annual marketing efforts—up from 37% in 2011. 40% of “by owner” landlords say their property was always rented, while the remaining 60% say they needed more tenants.

63% say they had professional photos taken of their properties. In addition, 21% say they had used a professional decorator to furnish their properties. We believe these numbers will go up as the “by owner” industry matures. More individual owners are seeing property management as a viable income opportunity that requires polished marketing.

The majority of “by owner” landlords say they use the Internet to promote their properties. 64% of respondents say they use CHBO’s basic listing service, followed by Craigslist (44%). Craigslist has been steadily trending down in popularity since 2009; though, it is still a prominent marketing vehicle for many property owners. Respondents find they receive the most qualified leads and the most renters from Internet marketing, followed by real estate agents.

Internet Reservations

In 2012, we again asked how the “by owner” segment feels about real-time booking reservations, in which the property is leased through a computer website and the property owner has no interaction with the tenant.  16% of respondents say they have used one of these programs (down from 20% in 2011). However, the majority, 53%, say “no,” they would never rent their property without talking to the tenant first.

CHBO Services

Of the respondents using CHBO, they tell us they use the following CHBO tools the most:
(1) The property listings (2) The MyCHBO documents page (3) The Property Owner Handbook.

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