Month: October 2020

How Tenant COVID-19 Behavior Is A Predictor of the Future

How tenant covid-19 behavior can be a predictor of the future in today’s challenging rental housing environment is the advice from veteran landlord David Pickron.

By David Pickron

Knowing how your applicant did in the COVID-19 times will be important information to protect yourself in the future.

As a newly married couple in our 20s, my wife and I went out and looked at new homes as we were trying to decide where to lay down our roots and start our little family. We walked through what seemed like a never-ending parade of homes to see what was on the market. When my wife walked in the last model home, which was decked out and highly upgraded, her jaw hit the floor and she looked at me, communicating non-verbally that this was the one; she had found her dream home.

Being new to the house-buying game and admittedly a little naïve to the process, we started our journey to purchasing our first home. Finding the home was the fun part, but qualifying, along with the accompanying mountains of paperwork, was another. After my wife picked out her upgraded white cabinets our first home cost $114,000, and all I could think about was how am I ever going to qualify and afford the payment? But after looking at my wife and seeing that look in her eyes, I knew one thing for certain, I was buying that house.

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    6 Mistakes that New Investors Make on Fix and Flip Properties

    There are tons of TV shows, YouTube channels and articles that make it seem like the fix-and-flip model of real estate investing is really simple and straightforward. However, it’s not as easy as it looks and there is more than meets the eye. There are tons of mistakes that new investors make that could easily be avoided with a little bit of education and coaching on the front end.
    If you’re thinking about getting into fix and flip real estate investing, we encourage you to do some research and learn from people who have been doing it for a while. There’s no sense in reinventing the wheel when there are tons of resources available to you to help and keep you on the right track from the very beginning. In this article, we are going to break down some of the key mistakes that new investors make and how to avoid them.

    What is Fix and Flip Investing?

    This type of investing involves an investing purchasing a property not to keep or use, but to turn around and sell for a profit as quickly as possible. Most fix and flip scenarios involve some level of cosmetic enhancements, renovations or improvements that are done to the home prior to putting it back on the market to sell. It’s a really great way to turn quick profits if you do it well.
    According to ATTOM Data solutions, 6.2% of all home sales in the United States in 2019 were house flips completed by fix and flip investors. That’s approximately 250,000 homes and an average of $62,000 gross profit on each. The key here is “gross” profit. Notice it didn’t say “net”.
    What’s important to understand about flipping houses is that once you close on the property, the quicker you can turn it around, the better. For this reason, flippers are often attracted to foreclosures, short sales and other such situations that allow for a quick turnaround. But you also have to be really careful to balance the attractiveness of a quick turnaround with the amount of money and work it could take to get it ready to put back on the market.
    Let’s dive into some of the mistakes that new investors make and how to avoid them. The more you know on the front end, the better off you’ll be!

    Mistake #1: Not Doing Your Research

    This is a lesson that is often learned the hard way amongst new investors. Just because you can get a house for a really cheap price doesn’t mean it’s worth it. There could be very good reasons why it’s priced so low and taking it on is not always a wise decision.
    Doing your homework on the neighborhood, the housing market and current conditions can save you thousands in the long run. It takes a little bit more effort in the beginning, but can be a total game changer. There are lots of resources, websites, mobile apps, etc. to help you make sound decisions during the buying process, so be sure to look into those, as well.
    There is a rule called the “70% Rule” that we highly recommend you consider when researching your properties. It simply states that you shouldn’t purchase the home for more than 70% of what it will be worth AFTER the renovations or the AVR (after repair value). In order to adhere to this rule, you have to know what the house will actually be worth and approximately how much it will cost you to do the renovations that need to be done.

    Mistake #2: Not Choosing the Correct Financing Option

    Ideally, you want to be able to purchase the homes in cash to avoid paying any financing fees, interest, etc. However, most investors who are just getting started don’t have access to that kind of cash right out of the gate. Making smart decisions in your financing will be a major game changer for you in the end.
    There are tons of vendors out there offering “no money down” and “low money down” options, but they are often touted by fly-by-night companies, rather than legitimate lenders. Don’t get caught in that trap because you are much more likely to lose money in the end, rather than making any. Additionally, if you are financing not only the property but also the acquisition of the property, you will be paying interest on that money, too. Remember that every dollar counts.
    Research all of your lending options and ask lots of questions in the process. You want to find a lender you can trust who can provide a mortgage product that works for you. Look for low interest rates, low closing costs and minimal fees.
    Then you need to consider how long it’s going to take you to turn the property around and get it back on the market and sold. Since you’ll be paying the mortgage while you’re renovating it, you need to consider those costs in your calculations. Again, every dollar counts.

    Mistake #3: Wasting or Underestimating Time

    If you finance your investment property, you’ll be paying a mortgage payment and interest for every month that you own the property. This means that time is money – literally. Making good use of the time and being efficient with renovation plans is critical.
    We recommend a few different techniques in this scenario.

    • Have a plan for the renovations or repairs before closing on the property.
    • If possible, have a few different contractors bid the work for you before closing, as well.
    • If you plan to do the work yourself, be sure to price out all of the materials and tools you will need and calculate how much time it’s going to take you to complete it.
    • Plan for how long it will take to get the necessary inspections on whatever work was performed, whether by you or by a contractor. This can take much longer than you anticipate.

    Many new investors are still working a full-time job because they have not yet built their investment portfolio to the point that they can quit their 9-to-5. If this is you, try to be realistic about how much time you can dedicate to the work that needs to be done. Do you have a spouse at home? Kids? School? All of these things can contribute to distractions that will keep you from being able to complete the work in a timely manner. It’s not a bad thing, but rather just something to think about.

    Mistake #4: Contracting Everything Out

    If you’re in a really great place financially, this might be a good option for you, but for most fix and flip investors, particularly new ones, the real profits come from doing the work yourself. We call this sweat equity. If you’re able to purchase the home, do the majority of the work yourself and in a timely manner, your profits will increase exponentially. The cost of contracting the work to someone else might be so high that it eats up any profit you would have made.
    There are many fix and flip investors who are contractors, builders, carpenters and other craftsmen for full-time work and do the investing as a part-time or seasonal gig on the side. These investors generally have the skills and knowledge to be able to complete the work quickly and efficiently, which allows them to turn better profits on their investments.
    If you’re not handy with a tool box, you might want to consider whether or not the investment in the property and the contractors will be more than the profits earned after the resale. If the profits will be marginal at best, it might not be a great option for you. Instead, you could consider partnering with someone who is able to do the work, or opt for a different type of real estate investing.

    Mistake #5: Doing Unnecessary Work

    If you ARE someone who is handy with a hammer and enjoys doing the construction yourself, it can be really easy to over-do it. When you’re passionate about home improvement and renovations, you can get carried away with all of the possibilities of the property. Try to restrict renovations to only the necessities.

    This goes back to doing your research and knowing your market. Although it would be awesome to renovate the kitchen, all the bathrooms, knock down some walls, etc., is it really a smart decision? In some cases, the answer might be yes. But more often than not, the answer is likely no. If you purchase a house for $80,000 in a neighborhood where houses sell for about $120-130K, it doesn’t make sense to dump $50,000 into it. You’re not going to sell it at a price that is high enough to overcome your renovation costs.

    Instead, think about what is absolutely necessary to make the home as attractive as possible to the current buyers who are purchasing homes in that area. Make those improvements as quickly and efficiently as possible and get the house back on the market. Also, don’t underestimate the power of a really good deep cleaning job, fresh paint and great landscaping. Curb appeal is more important than you think, so don’t forget about it.
    There are many resources available in the market to help you figure out what your return on investment (ROI) is going to be on any given property, based on sales price, finance fees, renovation costs and resale. A good rule of thumb is to shoot for an ROI of 20-30%. This gives you some wiggle room in case something goes wrong. If there is a major issue during the renovation, you have more financial cushion before you end up losing money. The best rule is: don’t lose money!

    Mistake #6: Being Impatient

    Buying an investment property and doing the work to get it ready for resale can be a really exciting time. But many novice investors are too eager to get started and just jump at the first house they see, without doing their research or considering any of the other things we’ve talked about thus far. Although your knee-jerk reaction might be to dive in head-first, try to rationalize your decisions and be patient.
    Do your research on the different areas of town in which you’re interested in purchasing an investment property. Then be patient and wait for the right deal. I’m not saying sit at home and wait for it to fall in your lap, but I AM saying that you need to weigh the pros and cons of each potential investment that you look at. If something seems off, or it’s not quite the right deal, let it go and wait for the right one.
    This goes for contractors, as well. Hopefully, you are able to do the majority of the work yourself. If you find yourself needing to sub-contract some of the work, again, patience is a virtue. A good rule of thumb is to get three quotes from three different vendors before making a decision. Many new investors jump at the first bid and hire that contractor, not knowing whether or not it’s a good deal and whether or not that contractor is any good.


    Fix and flip real estate investing is a great way to turn a quick profit for a savvy investor. If you have the skills to do the renovations yourself and the time to get them done quickly, this might be a perfect investing option for you. Just make sure you don’t make the mistakes we’ve discussed in this article.
    The reason that most people invest in real estate is to make money. When you’re just getting started in the industry, you will make a lot more money if you pay attention to the deals, be patient and do your homework. If can be an incredibly lucrative side hustle or primary job if you do it well and avoid the major pitfalls that most new investors run into.

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    Growing Number of Landlords Are Offering Restaurants Percentage-Only Rent

    That might still not be enough to save many smaller operators.

    A recent survey by the NYC Hospitality Alliance helps illustrate the dire straits of America’s restaurants.

    The survey found that 87 percent of New York City’s restaurants, bars and nightlife venues couldn’t pay their full rent in August. The culprit, of course, is pandemic restrictions imposed on these businesses.

    Further complicating the situation, 60 percent of the businesses surveyed said their landlords hadn’t waived any of their rent in response to the coronavirus pandemic. But in New York City and across the country, a number of landlords are offering concessions for restaurants and other hospitality businesses in the form of percentage-only rent.

    Some restaurant landlords are temporarily switching from fixed-rate rents to rents based only on a share of the tenant’s gross sales or revenue, in an effort to help these businesses survive, says Ken Lamy, founder, president and CEO of The Lamy Group, a Mandeville, La.-based financial management consulting firm. Landlords are then leaving the door open to revisiting the rent structure at a later date, perhaps 12 to 18 months down the road, he notes.

    “Rent is a function of revenue, and with restaurant revenue getting decimated in certain types of trade areas, one way to protect the financial stability of a restaurant—and provide a cushion before we recover from COVID-19—is to structure a percentage-only rent deal and fix the restaurant’s rental expense with an acceptable percentage of gross sales,” says Jason Kastner, managing director of the national advisory group at Washington, D.C.-based Dochter & Alexander Retail Advisors, which represents restaurant and retail tenants.

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      Turning a dead mall into a warehouse will slash its value as much as 90%, Barclays predicts

      Turning dead malls into fulfillment centers, apartment complexes, schools or medical offices could mean massive writeoffs in property values, according to a new Barclays report.

      In the coming years, hundreds of America’s roughly 1,100 malls are expected to shut, as retail, restaurant and movie theater closures pile up, and more people favor shopping on the internet over heading to the store.

      Property owners are going to be tasked with giving dead malls a new life. But the future prospects — fulfillment centers, apartment complexes, schools or medical offices — could mean massive writeoffs in property values, according to a new Barclays report.

      Turning a shuttered mall into an e-commerce warehouse or a residential complex could reduce the value of the property anywhere from 60% to 90%, Ryan Preclaw, a research analyst at Barclays, told CNBC’s “Worldwide Exchange” Thursday morning.

      While the land that malls sit on may offer better recovery values if it is used for a mixed-use development, he said, historically that has only happened for about 15% of former malls.

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        7 Insights for Landlords on the New Federal Eviction Moratorium

        Two attorneys recently joined the National Real Estate Investors Association for an online discussion to help landlords and property managers understand how best to deal with the new federal eviction moratorium.

        A new nationwide federal eviction moratorium has been ordered through the Centers for Disease Control (CDC) to halt residential evictions through the end of December for non-payment of rent due to Covid-19.

        Both lawyers discussed the issues, the affidavits that tenants must provide to show how they have been affected by COVID-19 in order to qualify under the federal eviction moratorium, and how attorneys could challenge the affidavits in court when necessary.

        You can hear the full discussion here on YouTube.

        Attorneys Jeff Watson, in Cleveland, and Jeffrey Greenberger, in Cincinnati, gave their thoughts – not legal advice – on how landlords could best react to the moratorium. They were introduced by Charles Tassell, chief operating officer of the National Real Estate Investors Association.

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          Affordable Housing Developers Build War Chests to Buy Properties

          Some buyers that want to keep properties affordable are hoping to snap up assets that otherwise might be converted to market rate units if they fall into other investors’ hands.

          Affordable housing advocates are tired of losing bidding wars that result in losing some of the nation’s already stretched supply of workforce apartments.

          During the recovery from the Global Recession, developers with a mission to create and preserve affordable housing struggled to buy older apartment buildings with an aim of keeping the rents reasonable enough for low-income families to afford. They are trying to prevent the same thing from happening in the current cycle, with the economic crisis caused by the coronavirus likely to trigger another wave of property sales.

          “In the last recession, a lot of private equity buyers swept in and picked up affordable housing properties,” says Kimberly Latimer-Nelligan, president of Low Income Investment Fund (LIIF), a national, nonprofit community development financial institution (CDFI) with $900 million in assets under management. “We plan to make sure the mission-driven organizations have access to capital to compete with investors who are going to take those properties to market-rate rents and displace all those residents.”

          To prepare this time, developers and investors dedicated to preserving affordable housing are now raising capital to make sure that they can successfully bid for properties, including affordable housing communities where existing restrictions on raising rents are nearing their ends. Affordale housing investors are also looking to buy older class-B and class-C apartment properties that have never been in official affordable housing programs as well as smaller properties with just a few apartments.

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            With Prices Down $200 Per Room, NYC Hotels Brace for More Pain

            October is often New York hotels’ busiest month. Last week, occupancy was hovering under 40 percent.

            (Bloomberg)—The Midtown Hilton has been closed since March. Same for The Edition, a brand new Times Square boutique. You can get a room at the Pierre, just don’t expect the full-suite of white-glove services that have made the hotel a Manhattan landmark since 1930.

            Autumn in New York, a season so inviting that it inspired a jazz standard, is grim this year, with the city’s tourism market among the worst in the U.S. The pandemic has canceled live events like Fashion Week and the New York City Marathon, repelled business travelers and international visitors and blown gaping holes in a tourism market that generates $70 billion in economic activity in a typical year.

            Things are better now than they were in March, the worst month in memory for the city’s hotel industry, but they’re still historically bad. At this point, more than 200 of New York’s roughly 700 hotels are closed, at least temporarily.

            Across the U.S., the coronavirus is pushing hotels to the brink, putting 870,000 hotel employees out of work and raising the prospect that thousands of hotels may never reopen. It will take years for the industry to recover.

            “Next year is going to be far worse than any year we’ve ever had except this one,” said Lukas Hartwich, an analyst at real estate research firm Green Street. “It’s going to be 2022 before we get back to where we were during the worst part of the last recession.”

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              Are You Making Any Of These 5 Rental Property Management Mistakes?

              Here are 5 rental property management mistakes that Keepe, the on-demand maintenance company, sometimes sees at rental properties.

              Managing a rental property can be challenging even for the most experienced property managers. As a property manager, you need to ensure that your tenants, workers, contractors, and your properties are in good shape.

              If you are a property manager managing 1 or 100 rental properties, here are five rental-property management mistakes from Keepe that you want to avoid.

              No. 1: You Don’t Have A Screening Process in Place

              As a property manager you are most likely to deal with all kinds of tenants­.

              When you rent your property to a destructive or troublesome tenant, you are sure to lose money and deal with problems every day. One sure way to save yourself of these issues is to have a detailed formal tenant-screening process that helps you select the right kind of tenants for your rental.

              No. 2: You Don’t Have A Reliable Contractor When Issues Happen

              Your tenants want the best service and quick solutions to their maintenance problems.

              Not having a dedicated and reliable handyperson you can call immediately will likely affect your tenant satisfaction and retention rates.

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                Some Multifamily Borrowers are Struggling to Find Small Balance Loans

                Terms are becoming more stringent on the financing deals that are closing amid the COVID-19 crisis.

                Amid the broader challenges facing the commercial real estate market, many investors who own smaller apartment buildings are struggling to find financing in the current climate.

                Many of the banks these sorts of investors rely on to finace deals have become more cautious in the pandemic—especially because smaller apartment buildings are more likely than larger properties to have residents hurt by the crisis that are falling behind in rent. Facing potential distress on existng loans, some banks are lowering origination volumes and hesitating to make new loans. Meanwhile, for the deals that are getting done, terms are becoming more stringent.

                “They are cautious… They make the loan-to-value ratio much lower,” says Richard Katzenstein, senior vice president and national director of Marcus & Millichap Capital Corp., working in the firm’s offices in New York City.

                Some owners of small properties work with lenders that offer programs like Freddie Mac’s Small Balance Loan program, or CMBS lenders—but all multifamily lenders are being extra careful in the crisis.

                Local banks still lead with small balance loans

                Community banks remain the most important source of financing for apartment investors with tiny portfolios. These apartment companies also tend to own smaller buildings and rely on the same bank they use for everyday financial needs to also arrange small balance apartment loans.

                Overall, banks, thrifts and credit unions provide a third ($124.1 billion) of the $364 billion of multifamily mortgages originated in 2019. The size of their average apartment loan was just $2.7 million, according to the Mortgage Bankers Association. Commercial banks remain the biggest players.

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                  Trump Tax Saga Shines Spotlight on Benefits of CRE Ownership

                  Depreciation, debt write-offs, tax credits and other measures are among the tax avoidance benefits inherent in the sector.

                  It may seem like a lifetime ago, but before news of the ongoing COVID-19 outbreak involving President Trump, White House staffers, Republican politicians and others, the New York Times stirred up a political firestorm surrounding President Trump’s personal finances with a new investigation revealing a staggering amount of business losses over the past two decades. The headline grabber was that he paid just $750 in personal federal income taxes in 2016 and 2017 and nothing in 11 of the 18 previous years. Additionally, the article said he claimed a total of $1.4 billion in losses from his core businesses for 2008 and 2009 and collected a $72.9 million refund for the 2010 tax year.

                  The article is just another chapter in the ongoing saga of President Trump’s personal tax returns, which he has chosen not to release to the public as most political candidates have done in recent decades. The New York Times piece amplified earlier reporting it had done in 2019 alleging that President Trump had reported $1.17 billion in losses from 1985 to 1994. As with those findings, the new revelations have put the tax benefits of commercial real estate ownership firmly in the spotlight.

                  President Trump has said publicly that he has paid millions in taxes, including property and payroll taxes. At the same time, he also has been candid in admitting he has utilized tax credits, deductions and real estate depreciation to offset income. For example, the Trump Organization received $40 million in Federal Historic Tax credits for its 2014, $200 million renovation of the Old Post Office just blocks from the White House into the 272-room Trump International Hotel on Pennsylvania Avenue.

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