Archive for the ‘Business’ Category

LA Rent Freeze… Dodged that bullet just barely

Friday, May 28th, 2010

Author: Scott Goodman • www.scenicwestpm.com

If you’re an apartment owner subject to the Los Angeles Housing Department Rent Stabilization Ordinance (LAHD RSO) – commonly referred to as “rent control” – you can stop holding your breath.  Last Friday , May 21, 2010, the LA City Council voted 10 to 5 to send a motion for a 4 month rent freeze back to the Housing Committee, effectually killing it.  An optimist might point out that 4 month moratorium on rent increases is not that big of a deal.  I tend to view this as what started out as a temporary 4 month freeze, would find a way to become permanent.  You may recall that tenant notice requirements for no fault evictions went the same way.  Up until a few years ago in California, landlords were required to give tenants a 30 day notice to vacate, a sort of no fault eviction.  Then a “temporary law” came along requiring a 60 day notice to vacate.  At some point it was supposed to go back to 30 days.  It never did.  The state legislature made the change permanent (see C.C.1946.1(b))  Now you have to give 60 days’ notice to vacate.  So count your blessings.  Los Angeles rent controlled apartment owners can raise rents this year the allotted 3% as prescribe by the LAHD.

Watch out for that tree… root!

Tuesday, April 27th, 2010

Author: Scott Goodman • Scenic West Property Management

Just a reminder for anyone who holds out hope that the City of Los Angeles is fixing that broken sidewalk in front of your property.  They aren’t…  at least not any time soon.  Perhaps in 10 to 20 years, when I last checked with the City of Los Angeles Special Project Division:
http://www.ci.la.ca.us/boss/SpecialProjects/contact.htm

Repaired sidewalk which had been broken by tree roots

In fact, money is so tight, that the person who picked up the phone said that the next time I call she may have been replaced by an answering machine.

So why should you care?  We recently fixed the broken sidewalk in front of one of our buildings and just in time. I watched as a tree on our property created a crack across the sidewalk that grew from a small thing into a 2” tectonic face in just over a year’s time. Ironically, once we decided to start getting bids to repair the sidewalk (a 30’ x 5’ sidewalk cost us $2,500) at least two people tripped on the sidewalk, one of which demanded that I pay for her emergency room visit.  Don’t wait for the City to fix a tripping hazard.  At the very least you may be able to grind down that crack and avoid writing a check for the emergency room visit.

Do we really want to go there?

Tuesday, April 13th, 2010

Author: Scott Goodman • Scenic West Property Management

I’ve noticed in recent weeks that landlords in Los Angeles, more specifically in Westwood, have begun to lure prospective tenants into signing leases by lowering move in costs.  Typically, move in costs consist of first month’s rent and security deposit.  One can only lower rent so much, so landlords have begun to lower the security deposit requirements.  On average, our property management company charges from 1 ½ to 2 times the monthly rent for security deposit.  I am now hearing from prospective tenants that they guy down the street wants 1x the monthly rent, some even less.  This is a race to the bottom that could end badly.  Some will argue that a large security deposit invites a tenant to skip on their last month of rent; others just shrug and claim that there usually isn’t that much damage.  As I have said before in previous postings, the security deposit protects you and your investment.  Don’t skimp on this “insurance”. Rather, try and work out a payment schedule to ease a tenant who is cash poor into paying a suitable amount of security deposit.  You won’t regret it.

Utility Billing: Virtual sub metering of your building, has the time come?

Monday, February 22nd, 2010

Author: Scott Goodman • Scenic West Property Management

Bills, bills and more bills.  For those of you who have been paying attention and those of you who haven’t, a typical utility bill in the Los Angeles area has probably increased anywhere from 50% to 100% in the last five years.  Although most buildings have individual electric meters for each unit, they are master metered for water – in other words, they have a single water meter for the entire building. Since property owners cannot measure the water consumption of each individual unit, it is customary  that water is paid for by the landlord. 

It turns out there are several options being developed to transfer this cost from your pocket to that of your tenant.  The devil of course is in the details.  In short, there are a growing number of businesses that specialize in billing your tenants on your behalf a prorated share of your water bill. These proration formulas are beginning to show promise as more owners adopt them.  Most owners adopt these new terms at lease signing.  On your lease where you used to state that the owner pays the water bill you now state that it is the tenant’s responsibility to pay for a portion of your water bill.  

It sounds easy, but there are going to be some bumps along the way.  Is your building under rent control? Rent controlled buildings are best approached with a long term commitment in mind as you are likely to only implement these changes as vacancies occur. Another thing to consider: will you be able to charge as much rent if the prospective tenant has to pay a typical bill of,  let’s say, $40 per month?  Early adopters will face these challenges.  On the other hand, early adopters could reap the benefit of passing through a significant portion of their monthly water charges.  Food for thought.

UCLA hikes up tuition – will that push up occupancy limits?

Tuesday, January 26th, 2010

Author: Scott Goodman • Scenic West Property Management

Despite student protests at UCLA and elsewhere, the University of California Board of Regents approved a 32% tuition fee increase that will push UC tuition above $10,000 per year for the first time, and this doesn’t even include housing and books. 

Since many of the properties we manage are located in Westwood and West Los Angeles, close to UCLA, we rent to a fair amount of students. A typical strategy among students has been for 3 or 4 tenants to share a 2 bedroom apartment, for obvious savings in living expenses. We are predicting that now, because of costlier tuition fees, students will have to get even cozier in their living arrangements, and we may start seeing 5 or 6 tenants applying for a 2 bedroom unit. As landlords, we know that  more people living in a unit equals more wear-and-tear and possibly more noise, but that’s not enough reason to refuse renting to a larger party. So what are the occupancy restrictions?

The Guidelines

HUD, the federal agency which regulates the Federal Fair Housing Act, has never adopted occupancy standards. Rather, it allows for state and local entities to adopt reasonable restrictions on occupancy as long as they apply to all occupants. According to the Los Angeles Fair Housing Department, the rule of thumb is 2 people per bedroom plus one person. This standard, based on the “Keating Memo“, would allow the landlord to restrict occupancy to 3 people in a 1 bedroom unit, 5 people in a 2 bedroom, and so forth. Allowing more tenants to occupy a unit is at the landlord’s discretion. However, according to the Los Angeles Building and Safety Department, the maximum allowable occupancy is 1 person per 200 square feet of habitable area (and that includes bathrooms and kitchens).

The Bottom Line

As a result of a lack of concrete guidelines, owners and managers may develop and implement reasonable occupancy requirements based on factors such as the number and size of sleeping areas or bedrooms and the overall size of the unit.  Consistency is everything. If you decide to adopt an occupancy standard, make sure that it applies to all occupants, and it does not discriminate on the basis of race, color, religion, national origin, sex, familial status or handicap. 

The information provided herein is not meant as legal advice. Please consult with your legal professional to obtain such advice.

Using a Roommate Addendum

Monday, January 11th, 2010

Author: Scott Goodman • Scenic West Property Management

The ever revolving door roommates is a source of aggravation for most landlords. Like a game of musical chairs, roommates are constantly moving in, moving out, or somewhere in between. As many of the properties we manage are close to UCLA, in Westwood, we rent our fair share to roommates. It is important to add a new tenant to an existing lease, or to remove one that has moved out. But given the frequency with which this can happen, it could become a full-time job. This is where the roommate addendum comes in. By using the addendum, there is no need for a new lease agreement every time there is a change in roommate tenancy in a specific unit.  A roommate addendum should state that the new tenant is obligated to all the terms of the current lease agreement, and that the outgoing tenant is released from all lease obligations. Landlords should also provide all legal forms, such as a copy of the lease, to the new tenant.

The other issue that is sometimes unclear to landlords, is the question of the security deposit. The simplest answer is that the security deposit is linked to the unit under lease, and not to any one tenant. When there is a switch in roommates, the reimbursement of the security deposit (or portion thereof) to the outgoing tenant should be settled by the tenants amongst themselves. A landlord is not obligated to refund the security deposit until the lease is terminated. This should also be clearly spelled out in the roommate addendum.

Lastly, always screen an incoming tenant as you would any new tenant. Stick to your standards and rental procedures to avoid future problems and ensure the successful occupancy of your units.

Keep your tenants happy, but not at any cost.

Monday, January 4th, 2010

Author: Scott Goodman • Scenic West Property Management

I recently came upon an article from Multi Family Executive, a trade publication for income properties, which left me scratching my head.  The article set out to give advice on ways to maximize tenant retention, listing the usual things you would expect:  Keep those repairs up to date, offer incentives like new appliances, new paint or new carpet and of course negotiate a new rent for those tenants who are determined to take advantage of a (from a landlord’s perspective) difficult market.  All these tenant retention strategies make economic sense when stacked against the loss of income resulting from a vacant unit.  

However, there was one item listed in this article which I strongly disagree with.  The article suggested returning the security deposit to long-term tenants who have a good payment track record. It is never a good idea to give back your tenant’s security deposit until the tenant has moved completely out and you have made all the necessary deductions – which you will then itemize in a security deposit refund letter.  You might look like the good guy by giving back the security deposit, but there is not enough room here to list all the problems inherent with this gesture.  The security deposit protects your investment. They may have been an ideal tenant for 30 years, but what if the moving company they hired to move them out damaged your elevator to the tune of $1000.  What are you to do then? Withholding the security deposit until you have done a move out inspection and have deducted all necessary expenses will save you from future hassles.

Another Notice for Rent Controlled Properties in Los Angeles

Tuesday, December 22nd, 2009

Author: Scott Goodman • www.scenicwestpm.com

Another proclamation has come down from the high priesthood called the Los Angeles Housing Department (LAHD).  The notice concerns those buildings built before 1978, commonly referred to as “rent controlled” buildings. Not surprisingly, the notice is about posting a notice – your tax dollars at work.  More specifically, the notice states that landlords whose buildings are subject to the Los Angeles Rent Stabilization Ordinance (LAHD RSO) must post a notice providing information about said Rent Stabilization Ordinance.  The notice must be posted in a visible location of the property – in the lobby, near a mailbox used by all residents, or in or near a public entrance to the property. LAHD will inspect properties and notify owners who fail to post the notice. Landlords have seven days to comply. One thing is for certain, if you don’t comply, you could be fined $250.00 per day.  Check it out at:

http://lahd.lacity.org/lahdinternet/Portals/0/Rent/RSO%20NOTICE%20(2).pdf

The Importance of Finding Good Tenants In Spite of the Bad Market

Thursday, December 3rd, 2009

Author: Scott Goodman • Scenic West Property Management

First in a series about tenant screening 

Don’t lower your standards and ignore your better judgment for the sake of a quick rental. I’ve been there and learned my lesson.  If the tenant looks bad on paper, just wait until they are living under your roof. A good property manager should have a written set of criteria which every prospective tenant must meet in order to live in one of your units.

The rental market is soft, there’s a lot of competition out there. Landlords are seeing one vacancy after another and feel the pressure to fill vacancies quickly. Many landlords have become less diligent in screening prospective tenants. After all, an occupied apartment is better than an empty one, right? Wrong.

Unfortunately, this non-vetting can lead to larger issues with problem tenants. Let’s fast-forward six months from now. Your tenant, who wasn’t properly screened, has stopped paying rent and now you have an eviction in your hands. It’s a double whammy – another vacancy AND an eviction. You would have been better off properly screening your prospective tenants and renting to a good tenant.

Only an apartment occupied by a GOOD tenant is better than a vacant unit. To avoid problem tenants, it is important to carefully assess your candidates. This might mean that you will have to suffer along the way and have an unoccupied period, but it could save you costly expenses later on. Remember, the time you spend up front carefully screening your applicants will save you a lot of time, money, and headache when compared to renting to a deadbeat tenant that defaults on rent, trashes your rental property, or worse yet, scares away your other tenants.

As a footnote, always use fair and consistent parameters for screening your prospective tenants. More about this topic coming soon.

A word about coin op laundry machine contracts

Tuesday, October 27th, 2009

 

coin operated washing machine

High efficiency coin operated washing machines

Author: Scott Goodman www.scenicwestpm.com

 

Are you using coin operated laundry machines in your rental properties? If so, it is a good idea to review your laundry room lease contract from time to time. 

The lease is structured so that you, the property owner, are the lessor and the laundry service company (LSC) is the  lessee; ie, you will be leasing space in your building (the laundry room) for the LSC to place their machines. This is an extremely competitive industry, and if you are well-informed you can negotiate very favorable terms for yourself.

At the very least, make a note to yourself of the expiration date of the lease, as I have seen some lease proposals that last 7 years. Furthermore, many contracts include an automatic term renewal clause which could have you kicking yourself after you hear the next thing I have to say. Historically, LSCs like Coinmach and Web split laundry income 50/50 with owners.  That’s not the way it is nowadays.  There are signing bonuses, 60/40 income splits in favor of the owner, laundry room improvements and machine upgrades to be had for the asking. Some of the machine upgrades can pay for themselves with so called “going green” rebates from third parties like the DWP.  That is the case if you decide to go with high-efficiency machines (HE machines). Some of these rebates have gone as high as several hundred dollars per washing machine for the water they expect to save over the lifetime of the machine. 

So pay attention and don’t miss out on this simple opportunity to improve your bottom line.  At the very least you will increase your laundry income; or you may even get a laundry room remodel out of it. And while you are at it, cross out that clause regarding the automatic renewal of your laundry room lease contract.