Rental Housing Journal - Colorado - June 2015

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July 2015 - Vol. 7 Issue 7Rental Housing Journal Colorado

DENVER • COLORADO SPRINGS • BOULDER

Monthly CirCulation to More than 7,000 apartMent owners, property Managers, on-site & MaintenanCe personnel

www.rentalhousingjournal.com • Professional Publishing, Inc

2. Ask the Secret Shopper3. Behind the Leasing Desk

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The entrepreneurial spirit may be taking a hit these days.

Studies show members of the Mil-lennial generation appear less inter-ested than previous generations in starting their own businesses, pre-ferring instead to find work with established companies. In 1989, 11.6 percent of households headed by someone younger than 30 held a stake in or owned a private enter-prise; today that percentage is 3.6 percent, according to a recent Wall Street Journal report.

Randy H. Nelson finds that trou-bling, but perhaps understandable.

“The statistics show the odds of success for a new business are pretty dismal,” says Nelson, author of the

How Extreme Self-Confidence Can End Up Working Against

Entrepreneurs More Introspection Is Needed For Long-Term Business Success,

Says Former Naval Officer and Business Leader

1Q15 PAYROLL TRENDS AND FORECAST

The BLS’s annual benchmark pay-roll revision exercise was very gener-ous to Denver this year, upgrading 2014’s job creation totals from an ini-tial estimate of 36,300 to 47,400. This strength carried over into the New Year as first quarter growth clocked in at a 50,200-job, 3.8% annual rate, up from 4Q14’s robust 46,700-job performance and the largest one-quarter gain recorded since 3Q00. Solid headcount gains were posted across industries led by the health care and construction sectors, which combined for growth at an astound-ing 21,100-job, 9.4% rate. There is some evidence of a slowdown in the energy sector, but related cuts were unlikely to have exceeded a few hun-dred net jobs.

Seasonally-adjusted data were healthy but suggest that a moderate slowdown is in the works. This series recorded only a 7,200- job net gain in the January—March period, down

continued on page 4

continued on page 5

Market Overview & Multifamily

Housing Update1Q15 Denver, Colorado

Real Estate: What’s In It For Me? Pt. 1

Many people are interested in real estate, but don’t really know much about it. They

know that it seems that a lot of people have made a lot of money in real estate (or achieved other goals using it), and they wonder if maybe there could be something in it for them, too.

National REIA wants to help you understand a little more about the real estate business and real estate investing. We’ve developed this report so you can get an overview of multiple investing strategies and determine whether any of these areas of real estate business or investing sound interesting to you. All of the

strategies in real estate we cover in this report are actually used by REIA members. When you join us at a monthly meeting you can talk to us and learn even more. Here are some areas of real estate discussed in this report:• Landlording• Wholesaling• Rehabbing/Retailing (Flipping)• Discounted mortgages and notes• Private money and hard money

lending

There are many more things you can do in real estate, including being a real estate agent or broker, an appraiser, or a home inspector, and

buying/selling on creative terms. Although these are beyond the scope of this report, we at REIA would be happy to discuss these with you as well.

Real Estate Business vs. Real Estate Investment

Is real estate a business, an investment, or both? The correct answer is “Yes.”

The “business” of real estate is generally referring to an ongoing, hands-on strategy. This is usually done using techniques like wholesaling, retailing, and flipping ( b u y i n g / r e h a b b i n g / s e l l i n g )

continued on page 8

Rental Housing Journal Colorado • July 20152

RENTAL HOUSING JOURNAL COLORADO

PROFESSIONAL PROPERTY MANAGEMENT SUPPORT

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Each apartment community has certain features and benefits, which are the selling points of

that particular community. It could be its location, friendly staff, spa-cious floor plans, beautiful landscap-ing or affordable price; just to name a few. Yet even with the most fabu-lous features, there will be times when the apartments you have avail-able won’t seem to meet the needs of your prospective renters. The follow-ing question from a leasing consul-tant addresses this issue:

Q: We have several vacant apart-ments right now and I know I’m supposed to try and rent all of them, but how can I rent to someone when it doesn’t seem like the apartment will really meet their needs?

A: Things are not always what they “seem.” Many times you may have the tendency to make an assumption about what you think someone needs based upon your limited perspective, frame of refer-ence or belief system. For example, you might have 2 bedrooms avail-able right now that are all located on upper floors. If a family with small children comes in, you might auto-matically assume that they are not going to be interested because you think they won’t want to deal with the stairs. On the other hand, you

could have all first floor openings and your prospective renter could be a single woman. You might think women living alone only want upper level apartments because you believe they feel safer off the ground. Therefore, when you have a single woman seeking a new home, you may not try to sell her on a first floor location because you don’t think it will meet her needs.

Until you truly get to know your prospective renters and determine what is most important to them, you really don’t know what they need. You are merely making “assump-tions.” It could be that the husband of the family mentioned above trav-els a lot. The wife may prefer an upper level apartment as she is fre-quently home alone with their small children, and would feel safer living upstairs. The single woman might have a lot of equipment that she has to bring home from work each day, and does not want to deal with con-stantly lugging it up and down the stairs.

It’s important to remember that every person who walks through your door is as unique and special

as each one of your available apartments. The term “one size fits all” may work when you are buying a stretchy article of clothing.

However, when it comes to helping people find a new home, no apart-ment will fit the same two people in the same way. For those times when you have prospective renters with needs you just cannot meet, send them to a sister community and/or offer to pay them a referral fee for anyone they refer who rents. Since things are not always what they seem, you never know when a pro-spective renter who does not end up leasing could be a source of referrals for months, or even years to come.

If you are interested in leasing training or have a question or con-

cern that you would like to see addressed, please reach out to me via e-mail. Otherwise, please contact Jancyn for your employee evaluation needs: www.jancyn.com

ASK THE SECRET SHOPPERProvided by: Joyce (Kirby) Bica Former owner of Shoptalk Service Evaluations

Consultant to Jancyn Evaluation Shops E-mail: [email protected] Copyright

© Joyce (Kirby) Bica

sk the Secret Shopper


Rental Housing Journal Colorado • July 2015 3


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RHJ COLORADO

Dear Heather, I have worked for the same property

management company for several years and have worked my way into a good salary, benefits, and a Manager in Training role. With this role comes great responsibility, including taking on the challenge of supervising employees. The downside to this role is that I don't really have the autonomy to really fix some issues that drive me crazy within my office and for the most part, my hands are tied when it comes to disci-plinary action issues because that is my manager's responsibility. You see, I have a coworker that has a variety of health issues and it is known within the office and management, so therefore, we have to accommodate. I have no problem with this for the most part. My issue is that she calls out a lot. When I say a lot, I mean it is to the point of being predict-able. Even my maintenance staff make jokes about her calling out so much. For instance, I will get a text that tell me how she's not feeling well and how it's ruining her weekend. First off, this is rather annoying because I frankly don't care what she is doing on her days off. Secondly, this irritates me even more because in my eyes this is a set up for the inevitable call out for her return to work from her weekend break. Not only that but she won't hesitate to share with you that she suffers from several ailments at the same time and all of the details of them ...I am not trying to belittle her health conditions but I honestly have never met anyone with more issues that prevents them from working in my life! I have brought these frustrations to my manager's attention many times. The response I get is very HR (which I understand) and it's typically some-thing like "you have to accommodate by giving breaks during the day or allowing her to go home early or come in late". Seriously?! Can't I just get a Leasing Agent that shows up and isn't a Web MD nightmare? Although her call outs have been less frequent than before, it's still predictable and if she does show up, she is so loopy from her medications it makes it difficult to work with her. My manager has told me to send her home if she comes to work loopy but frankly, I need her in the office and can't afford to

be alone in the office any more than I already am.

How do I balance my feelings of frus-tration and disbelief in her legit "sick days" and still be in compliance with the law and not on the wrong side of an law-suit? Some days I believe she is ill and other days I think she just didn't want to get up out of bed and come to work. She has even mentioned that she knows my manager can't fire her because she could sue based on her medical issues. I know we all have a right to call out sick but I just feel like it's predictable and abusing that very policy that is meant for those that do have medical issues that truly inhibit them from working normal shifts or performing daily tasks. How do I overcome these feelings of not believing her, not feeling confident in her atten-dance, not feeling confident that her ail-ments are severe enough to prevent her from working or performing her duties, and yet knowing that I have to accom-modate her call outs and deal with it?

Please Help! Sick and Tired of those who are

ALWAYS Sick and Tired Dear Sick and Tired of those who

are ALWAYS Sick and Tired,Wow! This is a really horrible

situation and I can imagine that you must be thoroughly frustrated, even more than your letter sounds. It's always difficult to work in an envi-ronment where you feel there is someone who is shirking their responsibilities, and working in a property management office with that sort of a person is extra hard because our days move so fast that once you get behind, you never feel like you can catch up.

First, while I very much sympa-thize with your situation, I have to concur with the "very HR" response that you've gotten so far. Employers MUST make accommodations to sick employees under federal law, but more than that, this particular employee has already placed a not-so-veiled threat against them. Whenever you have an employee who KNOWS and has the audacity to say that they know they can sue

their employer upon termination, it's a very sticky situation. On one hand, if any other employee pulled this behavior, you'd do the write ups and terminate them. On the other hand, it's going to cost you much more in the legal and public relations arena to get rid of this person than to let them half ass their job. From a com-pany view point, you're picking up the slack, so they aren't out anything and they don't have to deal with the problem.

Second, you have to make sure that even through your dissatisfac-tion with this employee that you are not making the work environment hostile so she will leave. She can sue the company for that as well, and a lot of those kinds of suits are being won currently, plus with the health issues she has, she'll have the sympa-thy on her side. Problems all around on that front.

Third, if she comes in "loopy" on her meds, you really should send her home. I know this puts additional stress on you, but remember that some states are verbal contract states and what she says in her inebriated state, you and your company can be held legally liable for. On top of which, any contract that she signs with a resident might not be valid if she, as a company representative, is in an altered state. Plus, in such a state, she could write a contract for either the wrong amount of rent or the wrong lease term, and once the resident has signed it with her, you're bound to that contract. Send her home when she's a threat to your NOI.

So let's talk about some solutions. One of the things that you men-tioned is that you can't afford to be alone in the office anymore than you already are. This may just be the background of a staffer talking, but one of the quickest ways to call attention from the corporate office to the escalated degree of the problem is to call your local staffing agent when she calls out, or when you have to send her home sick. The cor-porate office might not notice the stress that it puts you under to not

have her there, but they WILL notice the stress that staffing costs put on your budget. This is a risky solution, however, so it might be worth it to just contact your office about ASKING for staffing. It will have a similar effect, and won't potentially get you in as much trouble as just calling a staffing agent without approval will.

Now here's the good news - People who are frequently absent or who do not seem to connect with their workplace rarely stay there long term, so she may be on her way out. Also, if she's made the lawsuit statement, that might be what she's really looking for, and when you do not provide her with the grounds to sue, she'll move on and look for another rube to play this game with.

How you, as a manager in train-ing, handle a situation like this can be a defining moment for your career. You can take the path of secretly hat-ing your coworker (and believe me, MANY of us take that path, as it's the easiest), or you can try to ignore as much of the situation as you can and realize that you can only do what you can do in any given day, or your can try to reach the employee on a personal level.

The last is the hardest to do, but also the most long term rewarding of the options presented. To open com-munication you have to re-founda-tion some modicum of trust between the two of you. I would start by giv-ing her massive positive reinforce-ment on days when she doesn't call out sick or come in loopy. Extending yourself as a mentor and trying to have a different relationship with this employee might encourage her to come to work more often and to call out less.

As for managing your feelings on the issue, my best advice to you is to step back and take some deep per-spective on the issue. I want you to ask yourself if it's really worth you caring if you believe her or not? If it's worth carrying anger and spite over something you cannot prove and something that in the long run

Behind the Leasing Desk with Heather Blume

continued on page 6



Amazon best-selling book “The Sec-ond Decision: The Qualified Entre-preneur.” (www.randyhnelson.com/book)

“Half of new U.S. small business-es fail in their first five years, and 70 percent have gone under by year 10. That’s not exactly a new trend, but what is a new is that each year in the United States more businesses now are shutting down than are being started.”

But Nelson, who developed lead-ership skills as a Navy submarine of-ficer and has a track record of starting and building successful businesses, says there is a reason for those sober-ing statistics.

Anyone can become an entrepre-neur. No qualifications are required. If more entrepreneurs understood the ramifications of that – and took steps to compensate for their weak-nesses – the odds of success could improve, Nelson says.

One problem is entrepreneurs tend to be extraordinarily confident, which can blind them to their weak-nesses.

Nelson remembers that early in his business career his wife asked if he knew what he was doing. He as-sured her he did. Since then, experi-ence taught him he was wrong.

“The truth was, I didn’t know what I didn’t know,” Nelson says.

Over time, Nelson became what he calls a “qualified entrepreneur.” He says when he looks back over his

25-year entrepreneurial career that he could clearly identify four compo-nents of the qualified entrepreneur, and recently he added the fifth com-ponent, self-awareness, which is an important piece of each of the other four.

• EntrepreneurshipPeople who become entrepreneurs

are usually brimming with self-confi-dence, Nelson says. That helps them when it comes to making that “first decision” of starting a new company, all but ignoring those sobering odds for failure that would dissuade many others. The entrepreneur optimisti-cally thinks: “I know I can do this.”

• Career-Long learningEntrepreneurs think growth all

the time for their businesses. They preach their vision to employees and hire the best talent to help them reach their goals. But are entrepreneurs growing their skillsets as fast as their companies grow? If not, they risk becoming the wrong person in the wrong seat, with the very employees they hired to take them to the prom-ised land asking: ”What value do you bring to the company?”

• LeadershipThe importance of good leader-

ship is paramount to business suc-cess, but not all leaders are created equal. Nelson breaks down leaders into four types. The “urgent/reac-tive” leader thrives on an almost crazed atmosphere where he or she can ride to the rescue, put out the fire

and move on to the next problem. There isn’t much time for introspec-tion and no real vision. An “ever op-timistic” leader starts from the belief there is nothing he or she can’t do. “Yes, we can do that!” is the typical answer from this type of leader…leaving it up to their staff to figure out how, even if accepting the new business takes them away from their core focus.

The “reflexively pessimistic” lead-er plays to survive, not to win. This leader has been toughened by hard times, and always worries about the economy’s effect on the business, Nelson says. In some industries eas-ily battered by a downturn, this style can be effective. But if maintained too long, the pessimism becomes a self-fulfilling prophecy. The final leader-ship style, the “steady/proactive” leader, is the one every CEO should strive to become, Nelson says. This type of leader values productiv-ity and profitable growth above all things, knows how to achieve both and can course-correct no matter the difficulty. “They understand both of-fense and defense, and can shift be-tween them as cycles dictate,” Nel-son says.

• Life cycleA business has different needs at

different stages of the corporate life cycle. The qualified entrepreneur must recognize that. The startup stage is where many entrepreneurs thrive. Creating something from scratch is what they are about. Needs and challenges change, though, as companies enter growth or expan-sion stages. The entrepreneur’s needs change, too, because entrepre-neurs have their own life cycle, Nel-son says.

First, there’s getting the business started, and then there’s the second-decision stage when the entrepre-neur needs to choose what role he or she plays in the business, and wheth-er others might be better equipped. There’s also a third decision when entrepreneurs realize work infringes too much on family and personal time, Nelson says. “To avoid regrets later, you have to consider whether you need to make a stronger com-mitment to a more balanced life.” Finally, there’s the end stage when the entrepreneur is finished with the current business and must decide what is next. Having experienced the “exit” twice in his career, Nelson has

come to realize that after the sale only a few lives really change. Everybody else goes on with their normal day while the entrepreneur, much like a retired athlete, must figure out how to function without leading their en-trepreneurial venture every day.

“Ideally, entrepreneurs and CEOs would be more knowledgeable than everyone we manage,” Nelson says. “That’s rare, though. The rest of us would benefit from a better under-standing of the vast reaches of what we don’t know, and a dose of the hu-mility that goes with it, and this is where the self-awareness component comes in.”

• Self-Awareness Entrepreneurs need to know their

strengths and weaknesses, and how they affect the business, Nelson says. Unfortunately, that’s a trait they of-ten fail to develop. His suggestion: Surround yourself with people who know more than you (entrepreneurs, leaders, and coaches/advisors who have been through all the life-cycle stages the entrepreneur is navigat-ing through) and learn from them. Once you have a clear understand-ing of what you do and don’t know, you can decide your next steps. Will you continue to lead the business di-rectly; take a supporting role and let someone else lead; or move on to cre-ate another business?

Randy H. Nelson is a speaker, a coach, a Qualified Entrepreneur, a

former nuclear submarine officer in the U.S. Navy and author of “The Second

Decision – The Qualified Entrepreneur” (www.randyhnelson.com/book/). He co-founded and later sold two market-lead-ing, multi-million dollar companies —

Orion International and NSTAR Global Services. His proudest professional

achievement was at the Fast 50 awards ceremony in the Raleigh, N.C., area

when NSTAR, a 10-year-old company, and Orion, a 22-year-old company, were

awarded the rankings No. 8 and No. 9, respectively. Nelson now runs Gold

Dolphins, LLC, a coaching and consult-ing firm to help entrepreneurial leaders

and CEOs become Qualified Entre-preneurs and achieve their maximum

potential. He has a Bachelor of Science degree in Accounting from Miami Uni-versity, Ohio, and was awarded the Ad-miral Sidney W. Souers Distinguished

Alumni Award there in 2011.

Extreme Self-Confidence ...continued from page 1

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Market Overview ...continued from page 1

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from 11,500 during 4Q14 and the smallest one-quarter advance since 4Q11.

RCR specified a 98.4% adjusted R2model using U.S. payroll, GDP and metro personal income growth rates as independent variables. The model produces an optimistic fore-cast for 2015 characterized by stable job growth in the mid– to high-3% area for the balance of the year. But slowing national output and job growth exert downward pressure on the forecast beginning next year. As a result, expected growth rates de-cline below 3% in 2016 and further in 2017-2018. Nonetheless, Denver job creation should continue to run at 150% to 200% of the national aver-age.

1Q15 ABSORPTION AND OCCUPANCY RATE TRENDS

Vigorous renter demand for Den-ver apartment space persisted dur-

ing the winter quarter as tenants occupied a net of 1,021 vacant units during the period, according to Reis, marking the fifth consecutive quarter in which absorption totaled 1,000 or more units. Still, net leasing was off measurably from recent levels, fall-ing 460 units short of 4Q14’s absorp-tion level, suggesting some degree of potential weakening household demand. But much of this can be attributed to reduced new construc-tion deliveries (completions declined by 558 units to 1,285). When the dust settled, occupancy declined only 10 basis points sequentially, settling at 95.6%.

Axiometrics surveys of larger, sta-bilized same store properties also found a 95.6% average occupancy rate in the Denver market. Class-C properties recorded the highest oc-cupancy (97.0%), followed by class-B apartments (95.5%). Class-A assets came under a degree of supply pres-sure, falling 10 bps sequentially to a 94.7% average. Absorption at new properties continued at a healthy 13-unit/mo. approximate average but appeared to subside from the frenetic 20+-unit rate observed during sum-mer 2014.

RCR’s occupied stock growth model (ARS=93.0%) is optimistic, projecting absorption totals of 7,131 and 6,665 units in 2015 and 2016, re-spectively. But supply promises to be

even greater. Although Reis expect supply to decline sharply in 2017, our models don’t see it as deliveries are projected to remain above 6,000 units.

1Q15 EFFECTIVE RENT TRENDS Effective rents increased at faster

than a 7% year-on-year rate for the fourth consecutive quarter during 1Q15, in this case by 7.4% (Reis), third fastest among the RED 50 mar-kets. Sequential quarter growth ex-hibited a fairly pronounced slowing trend, however, declining from $30 (2.8%) and $13 (1.3%) during 3Q14 and 4Q14, respectively, to just $7 (0.7%) in 1Q15. Although this reflects seasonality to some degree, the im-pact of growing supply pressure is undoubtedly at play as well.

Axiometrics surveys of stabilized, same store properties report a dif-ferent finding. This service reports average year-on-year rent growth of

7.7%, equal fastest in the current cy-cle. Rapid rent increases were largely a class-B and class-C phenomenon. Class-B assets posted the fastest gains (8.5%), while class-C gains were near average at 7.7%. Class-A properties chalked down only a 4.9% advance, with just a 0.4% sequential gain, largely due to sluggish growth at properties delivered prior to 2010.

RCR’s Denver rent model achieves a 96.2% ARS using two lags of the dependent variable and payroll and home price growth variables as the independent variables. The outlook for both independent variables is for positive but slower growth, produc-ing similar results in forecasted rent trends. We foresee rent growth decel-erating from 5.8% y-o-y in 4Q15 to 4.2% in 2016 and 2.8% in 2017.

1Q15 PROPERTY MARKETS AND TOTAL RETURNS

Commercial real estate investors were avid pursuers of Denver apart-ment properties in recent quarters,

Payroll Job SummaryTotal Payrolls 1,356.3MAnnual Change 50.2M (3.8%)2015 Forecast 49.6M (3.7%)2016 Forecast 38.7M (2.8%)2017 Forecast 28.0M (2.0%)2018 Forecast 20.7M (1.4%)Unemployment (Nsa)

4.3% (Mar.)

Occupancy Rate SummaryOccupancy Rate (Reis)

95.6%

Red 50 Rank 28ThAnnual Chg. (Reis) -0.7%Rcr Ye15 Forecast 94.5%Rcr Ye16 Forecast 94.9%Rcr Ye17 Forecast 94.0%Rcr Ye18 Forecast 93.2%

Effective Rent SummaryMean Rent (Reis) $993Annual Change 7.4%Red 50 Rent Change Rank 3RdRcr Ye15 Forecast 5.8%Rcr Ye16 Forecast 4.2%Rcr Ye17 Forecast 2.8%Rcr Ye18 Forecast 2.1%



Market Overview ...continued from page 5Behind the Leasing Desk ...continued from page 3

continued on page 6

● Specialist in commercial real estate● 20+ years of experience helping

business owners, investors● Work with clients nationwide● Short or long term projects/speaking● Remote or face-to-face (will travel)● Excellent professional references

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acquiring nearly $2.5 billion of as-sets over the nine months ended in March. A total of 26 properties val-ued at $5 million or more exchanged hands during the first quarter 2015 for total proceeds of $987.8 million. This compares to 4Q14’s record $1.4 billion aggregate in 33 closed trans-actions. The average price of units sold during the first quarter was sharply lower, however, falling from $185,967 and $161,746 during 3Q14 and 4Q14, respectively, to $127,999, as the asset mix shifted toward a higher concentration of ;60s, 70s and 80s vintage assets.

Cap rates were mostly in the 5% to 6% range, Properties built since 2000 generally traded in the low- to mid-5% range. Trophy assets gravitated toward the 5% region. Class-B prop-erties traded to discounts of 50 to 100 basis points.

RCR elected to reduce Denver’s generic cap rate by 5 bps from 5.3%

to 5.25% to reflect strong buyer inter-est in metro policies. Employing this going-in yield, a terminal cap rate of 5.9% and model derived occupancy and rent forecasts, we estimate that an investor would expect to achieve a 6.8% unlevered total return on a five-year hold, hampered by the fair-ly weak occupancy outlook, near the 6.9% mean of the RED 46 markets. Risk-adjusted returns also fell near the middle of the peer group pack: Denver’s rusk adjusted index is 4.47, ranking 26th among the group.

Trade & Return Summary$5Mm+ Sales 26Approx. Proceeds $987.8MmAvg. Cap Rate (Fnm) 4.7%Avg. Price/Unit $127,999Expected Total Return 6.8%Red 46 Etr Rank 23RdRed 46 Rai Rank 26Th

will not make a difference? My mother once told me that you only have so many pieces in your matched set of emotional luggage, and you have to choose what's worth packing in them. You can't carry everything, so make sure that she's worth put-ting in there.

Good Luck to you!Heather

Heather is the Imagination In Charge of Behind the Leasing Desk

Training & Consulting Services out of Seattle, WA. An accomplished national

speaker, trainer, consultant, career coach, and author of both books as well

as countless industry related articles, Heather holds her CAS designation, is

NAA Advanced Instructor trained, and has been a member of the NAA Faculty

since 2009, serving as a WMFHA, CAM, and NALP instructor since

2009. You can check out more of her musings, podcasts, and class offerings

at www.behindtheleasingdesk.com




Market Overview ...continued from page 6

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property. It can be a great way to make a living, but if you stop working at your real estate business, the income will stop too.

When we talk about “investing” in real estate, we typically mean buying and holding real estate long-term, which generally means you are acting as a landlord, or landlording. When investing in real estate, we talk about tax advantages, return on investment (ROI), and appreciation.

Many people operate a real estate business and invest in buy-and-hold properties at the same time, but it is helpful to keep the two concepts separate in your mind. In any case, you can participate in real estate full- or part-time.

Goals:What are your goals? You need to

think about this and come up with your own answer before you actually proceed to involve yourself in real estate as a business or investment.

Below are some common goals that you may want to achieve through real estate:• Higher income• Tax benefits• Self-employment• Personal fulfillment• Passive income• Increased wealth• Supplemental current income

At this point we’ll begin an overview of different types of real estate businesses and investing. National REIA has experts who are involved in these various areas of real estate, and they would really like to speak with you at a monthly meeting.

LandlordingDescription:

• Landlording is the purchase of and holding of real estate over a period of time. It is often referred to as “buy & hold” or as the “get rich slow” technique.

Pros:• Tax advantages – This is a huge

advantage to buying and holding real estate. The government has setup the game in such a way that owning real estate long-term as an investment can save you significantly on your taxes.

• Appreciation – Unlike almost everything else that you purchase in life, real estate historically goes up in value, not down. Since real estate tends to go up in value, it can be a great hedge against the increased erosion of your net worth due to inflation. Cash flow – Hopefully you have purchased the property “right,” (with the right terms and the right financing) so that almost every month you have a positive cash flow. Over time, if you own enough properties, this can fully support you and your family. Generally speaking, there isn’t much money left over in the early years of owning a property, but the finances improve as your tenants effectively pay off the mortgage for you.

• Leveraging Other People’s Money (OPM) – When you purchase a

property using a sensible amount of leverage (borrowing OPM), you are minimizing the amount of money you are investing and getting a higher return on the cash you have invested without excessive risk. You are also using OPM by using tenants’ rent to pay off your loan over time.

• Wealth building – Due to tax advantages and that real estate typically appreciates, buying and holding property long-term typically will help you increase your net wealth. It is sometimes referred to as the “get rich slow” technique.

Cons:• Tenants – If you talk in depth to

experienced landlords, they will probably agree that a majority of their tenants have been good. However, it only takes a few bad experiences to dishearten one on being a landlord. Many people avoid putting on the landlording hat due to challenges such as trying to collect rent on time and property upkeep.

• Liability – Landlording increases your chances of being involved in a lawsuit. Most people think the landlord is “rich,” and thus the landlord becomes a target for lawsuits. You can take steps to minimize this risk.

• Time intensive – Being a landlord takes time. You can minimize this if you are able to hire a manager. Some way or another the property

must be maintained, managed, kept occupied and the bills paid.

• Expenses – It takes money to maintain real estate. You must have the financial ability to replace the roof when it needs replacing, fix damage from a pipe breaking, and weather some of the ups and downs of owning property long-term.

Skills needed:• People skills – A landlord deals

with a wide variety of people, so you will need to relate to and negotiate with your tenants, repair people, contractors, insurance representatives, bank officials, politicians, etc.

• Fix-it skills – Knowing how to repair and maintain your property is invaluable. Whether you decide to do the work yourself or hire someone else do it, you should know as much as possible about how to install drywall, fix a toilet, install a faucet, repaint a property, and so on.

• Financial skills – You will need to keep accurate records of the income/expenses associated with each property. This includes knowledge of tax-related issues. It is important to have a good CPA on your success team who will help you in these matters.

• Planning/saving skills – This is a specific financial skill but an important one. If you are someone who spends every dollar as soon as it hits your hand, then you will

have problems being a landlord. You must keep a “rainy day” fund for when the roof needs fixing. And you must have the skills to plan the maintenance and improvement of your property.

Time needed:• The time needed to be a landlord

varies widely depending on factors such as the number of units owned, the kind of property owned (single family vs. multi), and whether you plan to make repairs yourself. Relative to some other areas of real estate, landlording can be fairly time-intensive. Often it will be in spurts. A property may require no time for months, and then need your undivided attention for several weeks in order for you to repair and re-rent it.

Cash needed:• Typically landlording requires

seed money. How much will depend on your method. Cash required for buying property can be minimized if you are successful in using some creative purchasing techniques.

• Once you own or have “controlled” the property, you may need money to fix it up prior to renting it out.

• You will need money to keep the property maintained and to pay taxes, insurance, and the mortgage. If you purchased the property “right,” the rents from your tenants should cover all these costs and leave you some money left over for your efforts.

What's In It For Me Pt. 1 ...continued from page 1

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Rental Housing Journal - Colorado - June 2015

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Transcript of Rental Housing Journal - Colorado - June 2015