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As rental vacancy rates continue to drop. Housing prices froth, it’s time for landlords to get a game plan for selecting the best renters for their portfolio…

Housing on a Tight Rope

Debates are raging about whether US housing is swelling into another bubble. Historic data suggests this is highly unlikely for a number of years. The truth is that much of the country still isn’t back on par to where we were before the dip. Right now foreclosures are still being processed, home prices are heading up, mortgages are tougher to get than they used to be, and rents are heading up. It’s a landlords market. If single family home sales and price growth did slow, it would be even more of a landlord’s market.

This market is allowing rents to be raised dramatically, and is proving to be incredibly profitable for owners of multifamily apartment buildings properties.

However, it is worth noting that homeownership is at incredible lows. Nationally this rate has been marching back towards the 50% mark. Still with new and shadow single family inventory coming online, buyers desperate for properties, and the economy badly needing more transactions expect, expect mortgage lending to be loosened to facilitate more action.

For now rental vacancies have been dropped back to levels not seen in 2 decades. But there could be changes in the works. So while it is a landlord’s market now, it is important for real estate investors to know when it is time to hit the gas, and pump the brakes when it comes to leasing and raising prices.

Sky High Rents

Rents have risen to amazing highs thanks to millions of captive renters, and new leasing strategies. Profit margins have also risen due to more efficient property management. But even though there may be bidding wars over some rental units today rental property owners need to keep an eye on the big picture. Let’s face it – the truth is that in many places it is already twice as cheap to buy a home as it is to rent. It doesn’t take a genius to figure out that as renters get bombarded by offers of mortgage credit that some will start making the leap. So find some balance in between squeezing tenants out and maximizing income. On this subject it is also worth considering the sustainability of Airbnb short term rentals, even where it is legal.

Looking Beyond Rates

There is more for rental property owners to consider than just the top line rental rate and upfront deposit when selecting a tenant too.

Thorough screening is important. That means credit and background checks, rental history, income, and debt to income ratios. But it is also critical to be able to look at the big data and hone in on what really makes a tenant the best pick. That isn’t always just the one with the biggest deposit or willing to pay the most rent, or even best credit score.

Again; you need to look at net operating income. Who will actually deliver the most of it? This also has to factor in who will take best care of the unit, be the least problem, and will be the most loyal. After all, long term tenants are still the most profitable.

So taking all the data who is most likely to deliver the best NOI over the next few years?

Summary

This can be a confusing time for landlords. It is one of the best times in history to own rental property, and to add more of it to an investment portfolio. Rents are up, and right now landlords have their pick of renters. It may not stay that way forever. So who you put in your properties now could largely dictate your returns for the next few years. The savviest investors will put this in the hands of experienced local property management professionals that have the data and know how to decode it for the best returns.

Maximize Multi-Family

How can multifamily investors better maximize the performance of their properties and portfolios?

Multifamily apartment buildings continue to trend among sophisticated investors. All of the fundamentals in this sector are strong going forward, and apartment buildings provide the perfect income investment for both capitalizing on a new real estate boom, and finding protection in case residential sales falter on poor job and wage growth.

The popularity of multifamily has resulted in increased competition, especially in tight markets like the Northeast and Greater Boston area. Still, savvy investors can not only buck compressing cap rates, but are setting a new bar for returns and NOI with superior strategy and tactics.

Put these seven tips to work for your portfolio and enjoy better results…

1. Tech Savvy Property Management

While technology can sometimes make things more complex and distracting, today’s tech savvy MA property managers are delivering better results for their clients than ever before.

2. Better Multifamily Acquisitions

Leading investment firms are increasingly starting the process of demanding better returns earlier. Through better technology for accomplishing thorough due diligence, even on out of state properties, and employing local property managers earlier investors are negotiating better deals, with fewer negative surprises.

3. Better Tenant Selection

So much depends on tenant selection, yet so many rental property investors get it so wrong. Big data is providing more analytics and measurements than ever before. This is allowing the most experienced property managers to place new residents with incredible precision based upon both experience and intelligent data. This goes way beyond credit scores or income statements.

4.  Get Proactive on Online Reputation Management

The most successful apartment building landlords and real estate investment companies don’t wait until there are complaints or competitors unleash a web based attack. They are proactive and build up a barrier that deters these efforts and refuses to allow them to be easy targets and victims in the first place.

5. Customer Satisfaction as a Top Priority

Do to the impact of social media and online reviews customer satisfaction needs to be among the top priorities, if not the first. Note; this applies to both residences and all applicants.

6. Better Leverage

Financing makes all the difference in spreads, cash flow and net returns. Leverage should be used. However, there can be massive differences in the NOI of different investors depending on the financing they use. Terms, interest rates and equity versus debt financing can all make a difference.

7. Taxes

If MA multifamily investors take just one tip to apply from this report, it should be this one. Reducing taxes alone can make a monumental difference in real net returns. Consider self-directed IRAs, 1031 exchanges, and setting up captive insurance companies.

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Multifamily property investing continues to be a hot trend. However, while an incredibly profitable real estate sector, with a bright outlook, realizing the potential returns and rewards multifamily has to offer frequently comes down to management and execution.

Many investors, including the best funded, too often underestimate the importance of property management and some of the potential risks which lurk for those attempting a lack luster DIY approach to maintenance.

So how can multifamily real estate investors reduce risk and increase profit, and what are the best practices which can make all the difference?

Multifamily Property Buzz

Multifamily housing continues to be hot. Urbanization seems to be all the rage today. Whether this is really what consumers want, or density is being sold to Millennials and Boomers by municipal government and developers seeking to maximize tax revenues and profits could be debated. However, the fact that multifamily will continue to be the cornerstone of many portfolios and an in demand product for many years isn’t in question.

Local authorities across the country are increasingly bending rules and allowing re-zoning for multifamily and mixed use properties. Funding for these projects has become plentiful. Rising rents and single family home prices and interest rates, the need for affordable housing, and generations of captive renters are sure to keep up property performance.

Via Bloomberg News, Billionaire Sam Zell even recently proclaimed he expects homeownership in America to drop another 10% to a low of just over 50%. Even if the market turns dramatically in favor of homeownership. Multifamily properties can be repurposed and transitioned with condo conversions (and vice-versa).

Multifamily property investment has many advantages. Savvy real estate investors love it for achieving a lower ‘cost per door’ and consolidated property management, among other reasons. One of the best benefits of this commercial property sector is also the high ROI available on making improvements, as well as being able to value-add during any stage of the property cycle.

The Unforeseen Dangers of Daily Multifamily Property Management

Popular industry media outlet, Inman News recently ran a series on the dangers of property management. According to an April 2014 report covering data from the Bureau of Labor Statistics “real estate workplace deaths (are) again on the rise”.

Most have heard of the recent spate of Craigslist killers and assaults at real estate open houses. However, the data shows some trends which some might find quite disturbing.

Real estate workplace deaths actually rose 19% year over year to the most recent information published by the BLS. Of course there were the usually transportation incidents and slips, falls and trips. Fires and explosions and exposure to substances and dangerous environments also made the list of fatality causing factors. More startling may be the number one cause of deaths being assaults and violent acts (both by humans and animals). According to the hard data landlords and property managers are the most at risk, ahead of brokers and real estate agents.

Best Practices for Multifamily Property Management in 2014

Between the above personal dangers, liabilities and potential health care cost increases of setting up a personal in-house team, and the fact even the largest private equity and hedge funds have appeared to back down from their buying spree due to management and repair challenges the following should be considered best practices for today’s investors, landlords and property owners…

  1. Use a third party professional property management company
  2. Do repairs right the first time and tackle them early
  3. Ensure regular inspections
  4. Carefully calculate the personal and investment liability of DIY and direct employees

What were the real estate and finance trends for real estate investors?

Overall capital flow and transaction volume was set new highs, but more significantly will be new, and recurring twists in the market which changes where the value and best returns are. This is likely be especially be seen in northeast markets like Massachusetts.

US Markets Switching Up Positions

While San Francisco, Miami, Austin, and even New York and Boston have bounced back, and are pushing highs, 2015 is likely to see not only the smart money, but many lower level investors and lenders embracing secondary markets in earnest. In Massachusetts this means markets like Worcester could see performance outpacing central Boston.

Foreign Real Estate Investors

While around 80% of global investors said they planned to expand their positions in US real estate, a new DLA Piper State of the Market Report suggests foreign investors will be the most active in the US real estate market in the year ahead. Expect major changes overseas to drive even larger and wealthier investors to America.

Commercial Mortgages

According to CCIM coverage the US is facing a 2 year “tsunami of loans” coming due. On one hand this brings concern to borrowers that took out commercial mortgage loans when underwriting was incredibly lax and LTVs were high. Of $350B in loans coming due, many won’t qualify to refinance, especially unless they can come up with sizable chunks of principal to pay down. On the reverse side of the coin this will create incredible opportunity for value investors to step in with solutions, or acquire Worcester, MA multifamily and retail properties at deep discounts.

Retail Takes the Lead

The PwC Real Estate Investor Survey in the 3rd quarter of 2014 should expectations are that retail will lead the commercial real estate world in 2015 and into 2016.

Condo Hotels Make a Comeback

In November 2014 the CCIM Institute reported that it believes the JOBS act has made condo hotels easier to sell, and together with improving fundamentals is becoming more profitable.

Rising Rents, But…

Rents on retail and multifamily properties are only expected to rise for the foreseeable future. However, some already hot markets could run into affordability issues, and eventually the need for rent controls of some form or another. This makes the case for investing in cheaper secondary and tertiary markets like Worcester even stronger.

Easier Borrowing, Maybe

Relaxed lending is reportedly on its way, facilitated by the government. Many argue borrowing is already significantly easier, though just how much easier it will become in the coming years, will have to be seen as the issue is so political.

Both Massachusetts renters and their landlords are finding themselves hard hit by the cold weather. This year Boston.com reports more tenants upset with their property owners, and taking action than before. Unfortunately real estate investors and income property owners aren’t entitled to take off for ‘snow days’.

In Boston alone the Code Enforcement department is reporting figures coming close to 1,000 complaint calls about landlords each day. In just 3 weeks in February 2015 this hit almost 3,000 more calls than normal.

Tenants are turning in their landlords for a variety of reasons. Some of the most common in 2015 appear to be failing to clear snow from sidewalks, and addressing leaks. Functional heating and frozen pipes can also be a major issue at this time of year. Mass. landlords are legally bound to provide safe and acceptable housing. In fact, they have just 3 hours to clear snow from sidewalks after a storm passes. That’s not much when a DIY landlord might have several properties around town, and the snow could stop in the middle of the night.

Failure to stay on top of property maintenance, even during severe weather and cold can bring a world of expensive problems for real estate investors. Ongoing leaks, the weight of snow on the roof, slips and falls, and resulting structural damage, damage to tenant belongings, and even health issues from mold can bury multifamily, retail, office building, and single family rental property owners under mountains of paperwork and costs quickly.

Aside from the calls to the authorities and ensuing fines and liens, and lawsuits, tenants can withhold rent, while a property is falling further into disrepair daily. Many renters will also be forced to up and move, and they’ll choose better maintained apartments and premises, even at a premium. Some perhaps could cut their landlord’s some slack, especially when the area is dealing with historical weather conditions. Yet, sooner or later they’ll look for new landlords, and one who shows they are serious about providing good housing by employing a professional property management firm from the start.

For existing landlords and real estate investors seeking to make new MA income property acquisitions while interest rates are low there are two smart tactics that can aid in minimizing risks and financial loss. The first is to retain professional property management ASAP. This will relieve the maintenance burden on yourself, and instill confidence for tenants, while avoiding the costs of not keeping on top of maintenance. Secondly it is worth considering how you train tenants. Do you train tenants to know that they’ll only get a reply or help if they stop paying rent, call the city, or file a lawsuit? If so you can’t really expect them to do anything different. Or do you show them that you are immediately attentive to their needs and concerns and voluntarily work to do all you can to remedy issues without the threats? If you do this, this odds are that if you are a little late clearing that snow they’ll cut you a break.

Commercial mortgage lenders are dramatically opening up access to credit for multifamily investors.

Multifamily properties have caught their second wind in the US real estate recovery, and aggressive mortgage lenders are now stepping in to fund even more investors eager to expand into this space.

Apartment buildings experienced sizable demand at the beginning of the new upturn as institutional investors sought to scoop up everything possible that offered attractive yields. Then investors of all sizes turned their sights on single family homes. As the economy has been fighting its way back, home prices have rebounded, and investors realize that for a variety of reasons millions of Americans will remain renters for many years to come, multifamily is resurging again.

Multifamily apartment buildings have many clear advantages for investors of all sizes. They often offer a lower cost per unit, can provide higher ROI on improvements, provide built in diversification, and don’t lure independent investors into thinking they should try DIY property management.

The attraction to multifamily apartments is even driving many investors to significant new innovations. In the Northeast we have seen modular apartments popping up in high cost, high density areas. On the West Coast, more builders have dropped building properties for sale to construction luxury townhouse rentals. We’ve also seen some controversial cases of condos being bought up and consolidated so that buildings can be converted back into rentals.

However, individual real estate investors and small investment groups have recently seen mortgage lenders more interested in opening up the doors to single family property investors. The largest funds in the US broke into this arena at the beginning of 2014 with new buy to rent lending arms, and have since opened more conduits to flow their cash through. It has also apparently been a highly intelligent strategy to help cash out many that borrowed their money to buy REOs in bulk early in the crisis, so that they can make good on maturing debt.

Apartment building financing hasn’t been a total desert, but options haven’t been attractive as they could, nor competitive. This may have all changed at the end of August 2014. A new announcement from commercial mortgage lender Rental Home Financing declares new exceptions are being made to enable more investors to fund multifamily apartment building investments.

These new relaxed underwriting guidelines include allowing financing for those with bankruptcy, charge offs and foreclosure, up to 30 year amortization, and credit scores as low as 600.

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Real estate businesses, tenants, and commercial property investors bear the brunt of the hit from Google’s latest search engine ranking changes. So how bad is it? Who is being affected? What does it mean for the real estate industry and investment performance? How can this be turned around?

Google Switches Up Online Advertising Again

Tech publication G-Code Magazine, and the Best Transaction Funding blog raised the alarm this week as the impact of Google’s new Pigeon update began slamming many US businesses and real estate services.

Early analysis showed over half of Google searches affected by the new adjustments which elevated national directories and platforms such as Zillow and Yelp to the top of local search terms. In many areas and searches local business results appear to have been completely eliminated by Google, in favor of these giants as well as press related directories.

The Impact on MA Businesses

This new algorithm change clearly has major consequences for Massachusetts businesses. Office building and retail tenants could find they no longer show up in Google searches. That means consumers can’t find them and choose to do business with them in person, or online.

When tenants suffer major losses in business landlords lose out in rental bumps tied to performance. If businesses fail it can mean months of unpaid rent, lengthy vacancies, and high repair and improvement costs. This all means a hit to commercial real estate investment returns.

The direct impact on local MA real estate businesses and private landlords is set to be even more significant. If for rent ads aren’t seen and local Mass. real estate brokerages don’t show up in Google search or directory listings they are going to find internet and phone leads drying up fast, while their rental and for sale inventory sits on the market.

Countering Google’s Latest SEO Update

The bottom line is that Massachusetts businesses, restaurants, cafes, shops, landlords and Realtors could find income comes to a grinding halt, unless they take action, and leverage help fast.

Direct methods of countering this change and moving back up the search rankings for MA companies and independent professionals include soliciting more Yelp reviews, getting listed in more business directories including both national online ones, and niche online magazine directories. Diversification into other forms of online marketing such as PPC, Google Adwords, and article marketing can reduce further business interruptions and elevate visibility immediately.

Deploying the help of a local professional property management company that has the size and marketing team to overcome these challenges and which can help keep up occupancy and business performance could also be one of the best moves for real estate investors, landlords, and their tenants.

Downtown Worcester MA

Worcester, Mass. was just named one of the most undervalued housing markets in the US. So how does Worcester stack up for real estate investment on the national stage? What other factors might be working in favor of multifamily investors?

According to a new report from Trulia, Worcester, Massachusetts is one of the 5 most undervalued housing markets in America. So how cheap is Worcester real estate? How much more attractive is it for multifamily investors than other parts of the nation?

Trulia’s Top 10 US Metros for Undervalued Housing Prices:

  1. Akron
  2. Cleveland
  3. Detroit
  4. Dayton
  5. Worcester
  6. Memphis
  7. Toledo
  8. Chicago
  9. Lakeland-Winter Haven
  10. Providence

According to the data Worcester housing prices are trading15% undervalue. This compares with sizzling, frothy markets like LA which were already considered 17% overvalued as of the second quarter 2014.

Boston, New York, DC, and other northeastern property markets have also rebounded rapidly, both in home sales prices, and rental rates. Poor credit and lunar leaps in asking rents are literally pricing many boomers, middle-aged families with kids, and Millennials out of the markets they have lived and worked in. As seen in the recent Google fiasco in California; lawyers and tech entrepreneurs rich with new money are hiking up real estate prices, with little care about their own workers having to endure more than an hour in commuting each way. Some online comments suggest a systematic approach to driving out lower income individuals from top cities, in order to attract wealthier residents, and higher tax revenues.

For Massachusetts real estate investors this could mean seeing substantial migration towards areas like Worcester which offer more affordable housing.

With attractive, low borrowing and acquisition costs and rising rents and values, Worcester could be one of the most profitable housing markets in the country for buy and hold multifamily apartment investors. Higher rents and sales prices next year will add increased yields and capital gains to solid equity positions, proving high ROIs and security.

Worcester’s sustainable rate of growth, with house prices up just over 4% during the first half of 2014 suggest an extended growth period for local investors. However, it is crucial for property investors to recognize that maximizing opportunities and multifamily performance will be directly linked to execution, and specifically the quality of daily property management.

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Massachusetts landlords must be on the defensive as tenants are increasingly pushed to cash in on their landlords and terrorize them with everything from restraining orders to jail time. In fact if you are only sued for 3 times the rent on one unit this month you might consider yourself lucky…

Tenants are increasingly being armed to sue their landlords in court and withhold rent without fear of eviction. “Legal Tactics: Tenant’s Rights in Massachusetts” is just part of volumes published to encourage Worcester, Shrewsbury, Northborough, Westborough and Auburn renters to wreak havoc on their landlord’s lives.

Tenants and their families do deserve fair treatment and acceptable living conditions but current trends are often seeing good landlords become victims, which is being made worse by hungry legal beagles and even offers of ‘free legal aid’.

Why Being a ‘Good’ Landlord Doesn’t Matter

You may be the best landlord out there, with a huge heart and always doing your utmost to not just stay within the law but go above and beyond for your renters from building maintenance to cutting them slack, but that doesn’t mean you’ve got a ‘get out of jail free’ card.

  1. Not always easy to detect and spot – they’re pros – always have a good story – Hollywood level acting lessons – though otherwise good people being tempted due to tough times

  2. 18 grounds for civil lawsuits and criminial complaints

  3. Can you prove you are innocent? Repairs – genuine mistakes made – emotional and physical distress and on people they know who can sue you too!!!

  4. Close – Let’s be honest – odds you can successfully defend yourself 100% from a purposely malicious and educated tenant ZERO – at least put that on a property manager who can do all the hard work keeping you in compliance and let them get sued instead and use their own money to cover the legal defense… don’t appear to be an easy victim – like getting mugged in the street “don’t get mugged by your tenants”

lbpm-Retail

The Worcester, MA retail property market is ripe for investors, but as we touched on last week realizing the expected returns is all about execution and superior property management. So what’s helping to fuel the local market now, and how much of a difference can the right property management company make?

Retail store earnings have been rising and forecasts call for more of the same. The next couple of months of sales and holiday shopping are likely to boost these figures even further.

The new Siguler Guff report also highlights a further surge in investment in secondary market areas like Worcester which will boost property values and total returns for commercial real estate investors. Publishers of the report comment that secondary markets are not only delivering higher yields and capital gains potential, but make for safer investments today than hot primary markets.

Still it’s all about execution. This is just as important for cash flow and high yield seeking investors as it is for those simply desiring wealth preservation. If you don’t shoot to maximize potential returns across the board they will surely come in shorter than expected. And who wants to be shelling out for negative cash flow in today’s market?

So how can the right Worcester property management company make that difference?

Few commercial real estate investors dream of handling their own property management. However, there is property management that simply covers the basics and does the minimum, and then there are those that take it to a whole new level. This doesn’t just mean full service providing bookkeeping, building maintenance and leasing, but looking for ways to fully maximize a retail property’s potential.

What you do with a retail property in the short term can make all the difference for the long term. The right positioning and marketing of the property as a whole can make a huge difference in the appeal to both shoppers and retailers. This determines occupancy rates, rental rates, the amount of traffic, investment income and investor profit. In the longer run it can even determine wider local property values which will come back to lift the investment (or pull it down if not done right).

There is also clearly a big difference in property management firms that really care about what they are doing and their client’s best interests, and protecting them. This is a really big deal in protecting wealth and realizing top end returns.

This definitely becomes cleat when it comes to leases. There is a dramatic difference between the different qualities of tenants out there, and given the length of commercial leases – how well they are written. The lease can either create huge value that constantly increases investor value or depreciates the investment. So choose your Worcester County retail property manager wisely.