Tuesday

Rent Control, Managing Rentals and the GRM

In fact when a building with long standing tenants comes up for sale it’s a great selling point. It’s not hard to see future value when you are looking at a few units renting for $350 that would easily rent in today’s market for $1,500.

Not Everything Is Rent Controlled

In San Francisco, limits to rent increases are mandated and administered by the Rent Board with some exceptions:
1. New Construction: Mandated by state law, all building constructed after June of 1979 are exempted
2. Subsidized Housing: such as HUD housing projects.
3. Dorms, monastery’s and nunnery’s
4. Residential Hotels: If you have less than 28 days of continuous tenancy.

How it Works

Base Rent: A landlord can increase the tenant’s base rent by an annual allowable increase. This year its 2.2%. So, if a tenants rent was $1000, the most you can increase in 2009 is $22. Next year the rent board will declare the maximum allowable increase for 2010. There are other types of rent increases such as capital improvements, increased operating and maintenance expenses and utility costs, but they need rent board approval.

Managing Declining Rents & GRM

The trick now is to respect the trend, keep the unit occupied and preserve equity.

Here’s the problem: You have a vacancy or a recent tenant wants a rent reduction and the unit rents for $1500. But similar units are now going for $1400. Its bad enough to have to forgo $100 a month, but if lower your base rent you may be paying for that long after the market has recovered, perhaps even 10 or 20 years.

Here’s why: lets assume your base rent was $1500 and it becomes clear that you have to reduce it by $100. At $1400 (assuming this years maximum annual increase of 2.2%) it might take you three years just to get back to $1500. One down year affects the entire future income stream if you use a lower the base rent to accommodate new market realities.

Preserving GRM

Keeping the higher base rent in tough times

1. Attractive Gifts: Keep the rent at $1500, but offer gift certificates or other amenities. A rent reduction to $1400 is a $1200 annual loss. Maybe an offer of a new Dell notepad ($350) is attractive enough. If this worked, you would have kept your base rent at $1500 and saved $ 850 this year. In forward years, rent board increases would be based on $1500 and not $1400.

2. Skip a Month: Offer one month free rent. Tenants are open to this and it allows you to preserve your $1500 base rent. Never make it the first months rent, since you may find yourself with a tenant that doesn’t pay in the second month either and now you have a squatter.

3. Improvements: A really great idea is to offer amenities that will increase the value of the unit. Consider amenities tenants can’t take with them such as: stackable washer/dryers, microwaves or dishwashers. Tenants really do like the added convenience and it adds value to the unit. A good win-win choice.

4. Increase Market Depth: Consider pets. You can reduce risk by asking for a pet deposit in addition to the security deposit. Be sure not to exceed 2 x rent for unfurnished or 3 x rent for furnished rooms rules for San Francisco.

5. Section 8: Increase your applicant base by considering Section 8 . .

6. Advertise: Maximize your marketing presence by using Craigs List and an internet listing company such as apartments.com

7. Hire a property management company: If it saved you just one month, because of their leasing expertise or visibility, you would be ahead of the game.

** A note to home buyers: Preserving the base rent for future rent increases also skews the GRM. It’s important to compare the rent roll to actual rental income reported, when buying or representing buyers.

Thanks for Reading
Howard Bell

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The State of San Francisco Rental Markets


Silicon Valley and San Francisco are One

Ive been looking through some recent reports to try and sleuth out the general economic level of malaise and Im am happy to say that we are not yet feeling the pain in a serious way. . At 4 to 5%, our jobless rate is painful. but not devastating. Our vacancy rates are still less than 5% and we are among the top rental markets in the country.

I have this theory.....San Francisco is host to huge commuter buses that stop in most areas of the city. They pick up workers from Google, Apple, EBAY, Genetech and other south bay companies. The commuters are picked up in central locations throughout the city and driven to work and back. This has brought huge numbers of well paid employees whose only alternative to living and in San Francisco and working in the south bay was to endure a hour plus commute or take Caltrains.

The bus alternative is a no cost convenient way to live in San Francisco and work in Silicon Valley. The net of this, (my theory) is that San Francisco and Silicon Valley are becoming economically interdependent and this has fueled our rental boom.The health of the tech industry is even more closely aligned to the economic health of San Francisco than ever before. The human typography of this city has been undeniably altered.

San Jose as a Leading Indicator

San Jose is experiencing a very tough time. The San Jose unemployment rate is now 7.2%, compared to 4.9% a year ago and help wanted ads are down by 35%. If San Francisco has benefited with a healthier economy Its hard to believe this isnt a leading indicator for softer rent rates. Remember... its well paying jobs that led the boom and it is jobs that will herald the decline.

San Francisco is not experiencing the price declines that many homes have. However, if you consider that the major employers of the city are restaurants (hurting), the financial district (dead) and technology (weakening) then its time to adjust to new realities.

Reading the Curve
What Now

Markets precede peoples perception of them. In other words, people are still trying for historic rent rates. Waiting is too expensive. Rather than continue to try for historic returns. Its time to lock in cash flow rather than hit a home run. Focus more on reasonable cash flow guaranteed for a least the length of the lease. Its the best way to manage rental property today and get safely through this nasty downturn.

Thanks for Reading
Howard Bell

Your Property Path
www.yourpropertypath.com

Your Property PathSF
http://yourpropertypath.blogspot.com/

Your Property Path News Brief
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Sunday

Help is On The Way



From the sfgov website

Maria Shriver’s WE Connect campaign is a pioneering public/private partnership designed to help California’s working families become more financially secure by connecting them to important programs and resources.

What They Do

1. WE Connect Community Events have and will provide working families and individuals with one-on-one application assistance at no cost. Learn how to apply for key services and programs while having the opportunity to have their taxes prepared for free.

2. An online tool, developed by our partner Intuit for this campaign, will help working families determine exactly which programs they may be eligible for and how to apply

3. Education and job training provide working families with opportunities to get ahead and find better paying jobs. Icanaffordcollege.com, ScholarShare 529 college savings plans and the Employment Development Department are just some of the most helpful resources for information about saving and paying for college and job training opportunities.

WEconnect Partners:

Statewide programs, unions, small businesses and major corporations to connect with working families. WE Connect partners include: Intuit, Bank of America, Legal Aid Society of Orange County, Central California Legal Services, California Volunteers, AmeriCorps, California Department of Social Services, United Way of Greater Los Angeles, United Way of San Francisco, La OpiniĆ³n, ClearChannel, California First 5, SEIU, AFSCME, Save the Children, AT&T, PG&E, Sempra Energy Utilities, California Black Media Association.

Passing it Forward

Thanks for Reading

Howard Bell

www.yourpropertypath.com

A web site of over 450 articles related to real estate focused primarily on property management.

Your Property News Brief

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Trade talk for the San Francisco real estate industry. Your source for property management tips, policies and market trends.

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super deals on agent open house tools We hand picked Amazon for the tools you need

Section 8 is Being Challenged in California

What Is It

Section 8 is a voucher program administered by the FHA to provide income to low income and disabled individuals. it is a worthy attempt to provide an alternative to public housing. The system provides subsidies for qualified individuals. The subsidy check bypasses the tenant and is sent directly to the owner or manager.

In return, the owner/manager is required to sign a federal contract, allow for annual inspections and a market rent rate review can be imposed by FHA.

Is Participation Voluntary

Yes. Because the voucher payment bypasses the tenant, it is not considered a source of income and California owners can reject Section 8 applicants on the basis that the applicants income does not meet the financial requirements. After all, if you had the income you wouldnt need section 8.

There are challenges to California's position. Some section 8 applicants are making the case this is discriminatory and that section 8 should be mandatory.

What Are The Benefits
  1. Yearly inspections of the unit
  2. Fair market rental rates
  3. Strict renter responsibilities defined in the lease addendum
  4. On-time payments
  5. Tenants can be removed from the program for damages to the unit
  6. Owners get rent security
If you would like more info I have two articles on yourpropertypath and ezine

Thanks for Reading
Howard Bell

www.yourpropertypath.com
A web site of over 450 articles related to real estate focused primarily on property management.


Your Property Path news Brief
http://yourpropertypath.blogspot.com/

Snap News updates real estate markets and all things of interest to property owners and real estate professionals


Your Property Path Amazon Store
http://astore.amazon.com/yourpropertypath20-20
super deals on agent open house tools We hand picked Amazon for the tools you need



The Remaking of Taylor Street


The Tenderloin
94102

Known to early San Franciscans as St. Ann’s Valley, this once-placid piece of real estate provides us with a fascinating microcosm of urban history as we follow its turbulent passage from quiet respectability to entertainment center to vice-ridden streets,to its present partial reinvention as “Little Saigon”.
Source:
The Uptown Tenderloin Historic District Organization


Three blocks of Taylor Street will become an arts district. Taylor, at Ellis, Eddy and Turk will be developed into a community of live- work artists space and community art gallery in an area that has seen tough times.

In New York, SOHO, Tribeca and the lower east side have been rehabbed and new vital neighborhoods were created by a vanguard of city and private agencies with a vision.

Here's Whats Happening in the Tenderloin.

The Gray Area Foundation will offer exhibits, music and a resident-artists program using a grant from the City. It is taking over a vacant 4,000-square-foot building and will an arts gallery, artists' studios and a new-media lab. Adjacent buildings will house arts related stores and the nearby liquor store will be converted into a cafe. What is important here is that neighborhoods be revitalized in ways that wont necessarily displace people. This kind of development is people friendly.

There are some power houses involved in the project and it is already transforming the area near Market and 6th.

The San Francisco Arts Commission is in talks with Shorenstein Hays Nederlander to convert several floors of above the Golden Gate Theater into artists' studios and office space for arts-related nonprofits.

Mayor's Office of Economic and Workforce Development is involved and so is the The North of Market Neighborhood Improvement Corp, involved with bringing the arts to low-income communities.

Thanks for Reading
Howard Bell

www.yourpropertypath.com
A web site of over 450 articles related to real estate focused primarily on property management.

Your Property Path news Brief
http://yourpropertypath.blogspot.com/
Snap News updates real estate markets and all things of interest to property owners and real estate professionals

Your Property Path Amazon Store
http://astore.amazon.com/yourpropertypath20-20
super deals on agent open house tools We hand picked Amazon for the tools you need