Q: Dear Mr. Reno:
I have a tenant that is on a month to month now and has stated they are leaving (original annual lease, expired and carried over month to month). We agree on a date of departure, I agree to let him use one month security of the two I have to cover his last month of rent in order to help him with security on the next place he rents (I had property inspected by a relative and most things are in order, so would not need two months security to cover). I bought a plane ticket to fly up and check him out of the house and take possession back. I am informed a few days before the trip that he needs to extend as the place he was moving to fell through. I visit the house and we agree on a new date under a good faith agreement that he pays the rent for the previous month immediately, which would leave me with one month security. He has not made good on even making a partial payment, so I will begin the eviction process to ensure this does not drag on for months. Am I entitled to my travel expenses (air, rental car..anything) assuming I win in court and he is evicted since I am having to make multiple trips now?
Rob from New York
A: Travel expenses? Not happening, Rob. Never seen it. Never heard of it. Nothing in any lease I’ve seen. Maybe attorneys fees, never travel. Sorry.
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Tenants are an important part of your investment property succeeding, so how can you secure the right ones every time? In the first of this two-part series, Matt McCann, CEO of LocalAgentFinder.com.au shares his 10 tips on getting the best tenants and avoiding high turnover.
1. Find the right property manager Finding the right team to manage your property is crucial and by following these tips you can ensure you’re getting the best from your property manager:
- They must have a dedicated property management division
- They should be experienced and have previous success with problematic tenants
- The agency principal should be involved in the function of the property management division
- Your manager will attend inspections even on weekends or during extended hours to cater to tenants’ needs
- The agency has good programs and processes for vetting applications and monitoring rental arrears.
2. Update your property By keeping your property in top condition, you’ll attract tenants who take care of their belongings and property, and it will also keep you ahead of the competition. Ensure property updates suit your target demographic; talk to your agent and find out who your potential tenants would be and how you could better present your property to them.
3. Set the right price Keep your rental price in line with similar properties in the area or other landlords will gain a competitive edge in the search for good tenants. Ask your real estate agent about the current market and how much similar properties in the area are being rented out for before deciding on a realistic price. This is also why it’s important to be aware of the market your property is in.
4. Consider a short-term lease If you’re on the fence about a candidate because they have very little established credit but do have steady employment (such as a recent graduate), you could ask your property manager about offering them a shorter lease as a trial period. The contract could then be extended or terminated according to both parties’ needs.
5. Check your agent has run a credit check It’s a good idea to include a credit check in the screening process as it is usually safer to choose a tenant who has good established credit. Your property manager should look to see if any late payments by the potential tenant on their previous rental were a one-time deal or persistent, and how recently they occurred. Your property manager should be doing all these checks anyway, but open communication with them will make sure they are doing their due diligence.
The inventory of homes for sale continues to shrink. There were 2.02 million homes listed for sale at the end of October, representing only 4.3 months’ supply. A balanced market would be closer to 6-to-7 months’ supply. From a year ago, the raw inventory count was down 4%, which marked nearly two straight years of decline.
This shortage of housing inventory is the principal reason why home prices have been outpacing people’s income growth for the past five consecutive years. From 2011 to 2016, the median home price will have risen by 42% compared to the median household income gain of only 17%. Such disparity hurts affordability and is unsustainable over the long haul. The only way to lessen home price growth is to bring in more supply. It cannot be a simple case of existing homeowners listing their home. Keep in mind that nearly all home sellers are also home buyers, and thereby not truly providing a net increase to the inventory. The same logic applies to underwater homeowners who come above water after home price gains. What is needed is for homebuilders to boost construction and/or for investors who bought for the purpose of renting to unload those rental properties onto the market soon. There is no indication of the second occurring because of nice rental income flows. The only way to bring additional supply, therefore, is for homebuilders to get really busy.
Economic logic says that about 1.1 to 1.2 million net new households are formed each year. So that is the number of new homes needed to be built just to accommodate this rise in housing demand. In addition, 300,000 to 400,000 old, uninhabitable homes are demolished. Therefore, additional new homes of the same amount are needed just to replace the demolished ones. That puts the logical need for new home construction at right around 1.5 million per year.
In fact, the 50-year annual average for housing starts, up to the year 2000, was 1.51 million units. Quite comforting to know logic and the long-term statistical average matches up. But from 2001 to 2006, which covers the early years of the housing bubble to the peak, housing starts averaged 1.8 million per year – an oversupply. From 2007 to 2016, from the crash and subsequent recovery, the average new home construction clocked in at only 870,000 per year. Over the total big cycle from 2001 to 2016, the average is 1.25 million, and not the prior historical average of 1.5 million.
But as said above, an average of 870,000 new units per year over the past decade imply 8.7 million cumulative new units, when 15 million units would have been needed. Taking the difference between the two figures, the country is short by 8.3 million housing units. Part of this shortage has been absorbed from people moving in to what had been empty buildings and hence falling vacancy rates. But as evidenced by fast-rising rents and fast-rising home prices, we cannot expect a further fall in vacancy rates to handle the ongoing and growing housing shortage gaps.
The bottom line is that we need a few years of above-normal construction activity, say 1.7 million housing starts per year. Only then will we see a slight rise in vacancy rates to help lessen the rent growth pressure and bring the inventory of homes for sale to a more balanced market. However, based on various economists’ consensus projections of housing starts of 1.3 million in 2017 and at best 1.4 million in 2018, if proven true, then we are in for a housing shortage for at least four more years.
Wealthy Russians are looking to spend big on U.S. real estate in the wake of Donald Trump’s election victory.
The number of Russians who have expressed interest in buying luxury properties in the U.S. has spiked by 35% over the previous year following the billionaire’s win, according to global real estate consultancy Knight Frank.
Knight Frank said Russians are interested in vacation homes as well as investment properties. Nearly all are looking to spend between $500,000 and $5 million on a residential property, while 10% are hoping to buy commercial real estate.
The two most popular destinations are New York City and Miami.
“Many of our customers are going go to the Art Basel Miami Beach exhibition and will see real estate there,” said Marina Kuzmina, head of international sales at Knight Frank Russia. “A few customers are interested in the opportunity to buy property in development projects of Donald Trump, and we have received requests from U.S. developers wishing to cooperate with Russia.”
Some investors see Trump’s election as a sign that relations between Russia and the West may soon improve. Trump has praised Vladimir Putin as a strong leader, and the Russian president has made clear that he preferred Trump over his rival Hillary Clinton.
Related: Russian investors cheer Donald Trump’s election
Russian purchases of U.S. property accounted for roughly 15% of Knight Frank’s international sales as recently as 2014.
Some of the Russian purchases were extraordinary. Ekaterina Rybolovleva, the daughter of billionaire Dmitry Rybolovlev, made headlines in 2011 when she purchased the then most expensive apartment in Manhattan. The Central Park West condo was bought by a trust under the name of the then 22-year old for $88 million.
Rybolovlev himself bought a $95 million beachfront estate in Palm Beach, Florida in 2008. The seller? Donald Trump.
But demand fell of the cliff after western countries imposed sanctions on Russia over its involvement in the crisis in Ukraine. The sanctions, coupled with falling oil prices, put a huge strain on Russia’s economy and sent the ruble plummeting.
Now, Russian buyers appear to have returned with force.
In recent years, there has been a proliferation of “drive-by lawsuits” involving the Americans with Disabilities Act (“ADA”). Such actions typically involve a plaintiff’s lawyer cruising around town with a disabled individual in search of retail properties whose premises are in violation of the ADA. Indeed, these lawsuits are so prevalent that 60 Minutesrecently dedicated a portion of its Sunday night program to the topic.
Each year, drive-by lawsuits result in the filing of thousands of lawsuits by a relatively small number of individual plaintiffs. Ironically, oftentimes, these individuals have suffered no actual harm and can recover little or no monetary damages. Nevertheless, landlords and property managers may be required to undertake costly remediation efforts. The lawyers filing such suits recover attorney’s fees (sometimes with a kick-back to the individual plaintiffs as compensation for their time).
Even worse, these lawsuits—or even the mere threat of a lawsuit—may constitute nothing more than “shake-down” operations and are frequently resolved with the plaintiffs receiving a quick monetary settlement without the requirement that any remediation actually be undertaken. Currently, there is a push in many jurisdictions to pass legislation requiring notice and an opportunity to cure before the commencement of legal proceedings. Unfortunately, such efforts have thus far been largely unsuccessful.
Compounding matters is the fact that the consequences of non-compliance with the ADA can be severe. Potential outcomes might include mandatory injunctive relief (i.e., a court order requiring a property owner to fix the problem), the landlord’s payment of attorney’s fees—both its own and the plaintiff’s—civil penalties, and negative publicity. Further, because ADA lawsuits frequently involve no actual harm to the plaintiff, general liability insurance policies likely will not cover these expenses.
Fortunately, ADA compliance problems are preventable. Violations usually result not from an intentional indifference to the needs of disabled persons but, instead, from the lack of proper policies, procedures, and practices regarding accessibility. Having effective policies in place can go a long way toward avoiding the expense associated with ADA lawsuits. Further, implementing effective policies doesn’t have to be difficult; it simply requires being conscientious about identifying barriers to access to parking, entrances, restrooms, etc.
So, what does the ADA require? Businesses that are “public accommodations” (e.g., restaurants, shopping centers, office buildings) must provide accommodations and access to persons with disabilities that is equal or similar to that available to the general public. Owners, operators, lessors, and lessees of commercial properties are all responsible for ADA compliance.
New construction and elements of buildings altered after January 26, 1992, must comply with ADA standards to the maximum extent feasible. But this does not mean that older buildings that haven’t been recently renovated are “grandfathered in.” Indeed, even for existing facilities, landlords and property owners must remove “architectural and communication barriers” that are structural in nature when it is “readily achievable” to do so. Examples of such modifications include widening doorways to ensure wheelchair accessibility, retrofitting restrooms, and adding access ramps. A modification is “readily achievable” when it is easy to accomplish without much difficulty or expense. This standard will often depend on the nature of the proposed modification and the resources of the party responsible for implementing it.
Who is liable for ADA violations? Owners, landlords, and tenants can be jointly and severally liable in the event of non-compliance. Significantly, a landlord may not shift liability for ADA compliance to its tenants. Certainly, the parties’ lease may shift the cost of remediation to the tenant, but such a provision does not serve to exculpate the landlord from liability. Landlords, as owners of “public accommodations,” have an independent duty to comply with the ADA and can therefore be liable for ADA compliance on property leased to and controlled by its tenants. Further, tenants are not subject to liability for violations in areas that are not under their exclusive control, such as common areas. Additionally, some courts have held that landlords cannot shift the financial responsibility for ADA compliance to architects and builders because to do so defeats the purpose of the ADA.
How does this affect property managers? Although property managers may not have direct liability for ADA compliance, their actions, as agents of the landlord, can have significant consequences. For example, in a recent Pennsylvania case involving the Cracker Barrel restaurant chain, the court certified a national class action lawsuit covering any person who had visited any Cracker Barrel location nationwide and who had encountered barriers to access. Certainly, there had been no finding that every Cracker Barrel location suffered from ADA violations, but the court nevertheless found that Cracker Barrel’s property managers had evidenced a systemic failure to inspect accessibility standards overtime. Thus, the acts and omissions of property managers can have far-reaching ramifications for landlords.
What about landlords who acquire existing properties? Landlords in the business of acquiring existing properties should take ADA compliance seriously. Due diligence should focus not only on the financial aspects of the transaction but on ADA compliance, as well. Failure to do so risks buying not only the property, but a lawsuit, as well. To minimize the risk of purchasing a non-compliant property, purchasers could (a) require that sellers correct any ADA violations as a condition of closing, (b) demand that a portion of the purchase price be placed in escrow until ADA compliance can be confirmed, or (c) negotiate a reduction in the purchase price so that the purchaser can implement remediation efforts itself.
ADA compliance is of critical importance. By recognizing the risks associated with non-compliance, and by implementing policies and procedures designed to ensure equal access to all, owners, landlords, tenants, and property managers can minimize the risk and expense associated with preventable violations.