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John Souerbry's Blog

By John Souerbry | Broker in Palo Alto, CA
  • More Tips For Selling A Rental Home (Part 2)

    Posted Under: Home Selling in California, Rentals in California, Investment Properties in California  |  November 14, 2013 8:43 AM  |  406 views  |  No comments

    More Tips For Selling A Rental HomeMore Tips For Selling A Rental Home

    Earlier this year I published a few tips to help make the sale of rental property easier and more profitable ("Tips For Selling A Rental Home").  Today, let's peel back another layer of the onion and look at a few more tips for selling a rental home that will help us achieve better results from the sale.

    Rent Increase Timing

    The ability to raise rents soon after purchasing a property is an attractive feature for rental investors.  If it's been awhile since you've raised the rent on your property and the market supports it, raise the rent before listing the property for sale.  This has two positive effects: 1) it improves the value of the property based on cash flow or net income and 2) it gets the clock ticking on the earliest possible date that the new owner can make another increase.

    Lease Expiration Timing

    A landlord's ability to raise the rent amount is, of course, dependent upon the lease contract with the tenant.  If the lease is annual, landlords typically can't raise the rent until the lease expires.  Some landlords include quarterly or semi-annual rent escalation clauses in their leases, but in most lease agreements the rent is locked for the period of the lease. If we are planning to sell our rental and we believe potential buyers could be investors OR someone who intends to occupy the property, we should consider putting the tenant on a month-to-month lease agreement.  This provides flexibility for making future rent adjustments or for buyers to cancel the lease with just a couple months notice if they intend to occupy the property.

    Packaging

    If we intend to sell several rental properties, we can sometimes wring more value from the sale by packaging two or more properties together.  A common packaging strategy is to require that an investor purchase an attractive investment property concurrent with the purchase of a second property that might be difficult to sell if it was marketed on its own.

     

    These are just a few strategies to help increase the back-end return on investment on your rental property.  Check out my original article -  "Tips For Selling A Rental Home."  For help buying, selling, trading or managing California rental property, please contact me today.

     

  • Silicon Valley Apartment Properties On The Market This Week

    Posted Under: Rentals in California, Investment Properties in California  |  November 4, 2013 2:39 PM  |  350 views  |  No comments

    Silicon Valley Apartment PropertiesThree northern Silicon Valley apartment properties were placed on the market during this past week - all in Redwood City.  Click on the address of the listings below for additional information on each.  You can also CLICK HERE to view all the multi-family properties currently on the market in this area.

    Silicon Valley remains a strong rental market, thanks to the increase in demand for tech and other workers plus the overall market value improvement in the local housing market.  Conditions are good for profitable operation of well managed residential rental properties.  Contact Us for help with analysis and purchase of northern Silicon Valley apartment properties.

     

    Silicon Valley Apartment Properties On The Market This Week

     

    780 BRADFORD ST, REDWOOD CITY, CA 94063
    780 BRADFORD ST, REDWOOD CITY, CA 94063
    $6,099,999 25 Units

    15 ATHERWOOD AV, REDWOOD CITY, CA 94061
    15 ATHERWOOD AV, REDWOOD CITY, CA 94061
    $4,300,000 17 Units

    1120 ARGUELLO ST, REDWOOD CITY, CA 94063
    1120 ARGUELLO ST, REDWOOD CITY, CA 94063
    $2,390,000 10 Units

    Looking for property management support?  We can help, just click on >>> Silicon Valley property management.





  • Selling Real Estate With Pass Through Deposits

    Posted Under: Home Selling in California, Investment Properties in California  |  September 10, 2013 11:10 AM  |  775 views  |  No comments

    Selling Real Estate With Pass Through DepositsSelling real estate with pass through deposits is very common in commercial property and land transactions, but not in residential sales.  Let’s look at what pass through deposits are and how they can be used to reduce the seller’s risk in a home sale.

    A pass through deposit is simply a cash deposit made into escrow by the buyer that is then released to the seller prior to escrow closing.  The cash to be released may be all of the initial purchase deposit, just part of that deposit, or come from an additional deposit made later during the transaction.

    The release (pass through) of deposit funds is most often tied to a specific date or event.  As sellers, we usually prefer that contingencies are tied to either specific days after the contract was signed or to a calendar date.  Those days often coincide with an event, though scheduling the release based on time is the preferred contractual arrangement and protects against delays that might be caused by the buyer not signing documents or completing tasks on time.

    Here is a typical scenario that might be expanded into contract language and included in a final purchase agreement that includes selling real estate with pass through deposits:

    • Escrow Period – 90 days
    • Inspection Contingency Release – 17 days
    • Initial Deposit Upon Signing Contract - $15,000
    • 2nd Deposit, 17 days after contract - $15,000
    • Pass Through Deposit Released To Seller, 18 days after contract - $20,000
    • Remaining portion of deposits applied to purchase price and closing costs

    Why should a seller consider selling real estate with pass through deposits in their sales contract?  Here are several reasons:

    1. To motivate the buyer to close
    2. To compensate the seller for marketing time lost while in escrow if the buyer backs out
    3. To compensate the seller for the delay in closing that occurs when the buyer requests an unusually long escrow period

    Pass through deposits almost always benefit the seller, so why would a buyer agree to them?  In a seller’s market, the buyer may not have many alternatives if they are highly motivated to make the purchase.  The seller may also benefit if the pass through deposit motivates the seller to stay in the transaction and cooperate with closing the sale on time.

    A common additional feature of pass through deposits is making them non-refundable.*  This feature guarantees that the seller will keep the pass through deposit even if the transaction fails to close.  In competitive bidding situations, some buyers include pass through deposits in their offers, sometimes non-refundable, because they’ve already done their homework on the property and want to increase the attractiveness of their offer, even if they can’t increase their total offer price.

    If you have any questions about selling real estate with pass through deposits or contract strategy, drop me a line.

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    *Note:  Although non-refundable deposits are frequently found in commercial and land sales and can be used in residential sales, there have been legal opinions published recently that question whether a deposit can be non-refundable.  These opinions usually reference a Southern California court case wherein a luxury home sale did not close and the seller kept a non-refundable deposit.  The seller then sold the home to another buyer.  The seller was ordered by the court to return the deposit, since he got a higher price for his property from the second buyer.  For a legal opinion on this issue, consult with a real estate attorney.

  • Property Management Tips: Keeping A Rent Roll

    Posted Under: Rental Basics in Palo Alto, Investment Properties in Palo Alto  |  August 29, 2013 8:57 AM  |  1,439 views  |  2 comments

    Keeping A Rent Roll

    Keeping a rent roll is fundamental for most real estate investors and property managers.  A rent roll is simply a written account of rents and other fees assessed to a tenant and when they were paid.  Rent rolls can be hand written in a notebook or automatically generated by property management software programs.


    When will you need a rent roll?

    Here’s a short list of when keeping a rent roll up-to-date is essential:

    • Settling a balance dispute with a tenant
    • Filing an Unlawful Detainer lawsuit to evict a tenant
    • Annual lender audit (5+ unit properties)*
    • Disclosing tenant payments to potential buyers when offering the property for sale
    • When preparing taxes or conducting an internal audit


    What should a rent roll contain?

    For many property managers, a rent roll is a summary of the tenant’s payment obligations as defined in their lease agreement.  A standard format is shown in the example below.

    Keeping A Rent Roll

    Note than in every month except March the tenant paid rent on time.  In March, the tenant did not pay rent by the end of the grace period (rent is due on the 1st, late after the 3rd each month).  On the morning of March 4th an entry was made in the rent roll to indicate that a late fee was now due and the property manager delivered a late notice to the tenant.  The tenant paid rent and the late fee on March 7th.

    Some leases identify charges that are assessed separately from rent that should be entered into the rent roll each month.  Some of these could be:

    • Utilities paid by the landlord and split with the tenant.  For example, some landlords split the actual monthly water bill with the tenant when the landlord provides lawn service with watering of grass and in-ground plants.
    • Security alarm services that can vary in cost based upon remote access requests or false alarm charges.
    • Repair assessments for items broken by the tenant.


    Other reasons for keeping a rent roll?

    Rent rolls are also handy tools for finding when a tenant last had a rent adjustment (increase or decrease).  They can also be used as a quick reference when another property manager contacts you to inquire about the payment history of a past tenant.

    If you need help or have questions regarding keeping a rent roll, property management or general real estate investment, drop me a line:  Contact Us.

     

    *The State of California requires that commercial lenders conduct annual audits of a portion of their commercial loan portfolios, which typically includes site inspections and review of the property’s financial operating statements and associated documents (such as the rent roll).

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    John A. Souerbry & Associates/Real Estate   (CA BRE 01370983)

  • Property Management Tips: When A Tenant Breaks Something

    Posted Under: Rental Basics in Palo Alto, Investment Properties in Palo Alto  |  August 9, 2013 9:45 AM  |  1,083 views  |  1 comment
    when a tenant break somethingMost rental property owners eventually face this question – what to do when a tenant breaks something?  Rental properties require constant inspection and maintenance, but some of those costs should be justifiably paid by the tenant when they are clearly responsible.

    Here are a few tips for dealing with the unfortunate situation of when a tenant breaks something.

    1.    Document the problem.  As soon as a problem is discovered, document it with a written preliminary inspection report supported by photos and/or video.

    2.    Get written repair quotes.  Depending on the specific problem, you may need to have it inspected by a qualified contractor.  Ask the contractor for a written inspection report and repair quote.  If the quote is over $200 (or another limit you chose), ask for quotes from a couple more contractors to make sure you get a fair price.

    3.    Determine who will pay for repair.  Determine whether the item has been broken or damaged due to tenant abuse or negligence or by normal wear-and-tear.  Unless the damage is through normal wear-and-tear, the tenant will usually have to accept responsibility.

    4.    Advise the tenant formally.  You will probably inform the tenant verbally that you’ve found a problem, but if you expect the tenant to pay for the repair you need to notify them formally that you consider them financially responsible.  When handing them the written notice requesting that they pay for the repair, request a delivery receipt or send it Certified Mail, Return Receipt.  Give them the opportunity to rebut your claim, but if the rebuttal is bogus you’ll need a good paper trail to justify your assessment of responsibility and the repair cost.

    5.    Determine how the repair will be paid for and collect fast.  Some tenants will willingly pay out of pocket or add the cost of the repair to the next rent check, but it’s important to collect on this debt as quickly as possible.  Some tenants will say “take it out of my security deposit.”  Tenants who say that usually leave damage at move-out that costs more to repair than the amount of their deposit, so it’s best to get the repair costs paid immediately and separate from the security deposit.

    Here are some tips for deterring tenant abuse or breakage:

    • Document the condition of the property at move-in.  Landlords often complete a move-in checklist noting discrepancies, but that’s just half the job.  It’s also important to document that everything is in good condition.  Up-close photos of appliances, fixtures, doors and other features that could be easily broken or damaged provide evidence that the items were in good working condition when the tenant accepted responsibility for the property.
    • Conduct regular inspections.  Quarterly or semi-annual interior and exterior inspections are a great way to reduce many kinds of problems.  Include a clause in your lease that advises the tenant that these inspections will be taking place and that you have the right to enter the property any time with 24 hour notice.
    • Use rent coupons.  The most common tenant response to an eviction notice is “the landlord didn’t maintain the property in an inhabitable condition” or something along those lines.  They’ll say the furnace hasn’t worked in months or the plumbing is backed up – anything to stall the eviction and justify not paying rent.  A handy tool to counter these claims is a rent coupon.  When the tenant signs their lease, hand them a dozen or so pre-printed coupons that indicate the property address, the tenant’s name, and amount of rent due each month.  Provide a space where they can describe any problems with the property.  If there are no problems, provide a check box that says “There are no problems with the property at this time, everything works properly and nothing is damaged.”  Also provide a line where they sign and date the coupon.  Require a coupon with each rent check.  This often deters tenants from abusing the property and, if necessary, can be provided to your eviction attorney to support your claim that they property has been properly maintained.

    NOTE: This article is not intended to offer legal advice.  Consult with an attorney whenever faced with the legal side of lease compliance issues.

    If you have questions or need help with property management or taking action when a tenant breaks something (or other problems), read about our Property Management Services or drop me a line:  Contact Us.

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    John A. Souerbry & Associates/Real Estate   (CA BRE 01370983)

  • Property Management Tips: When A Tenant Stops Paying Rent

    Posted Under: Rental Basics in Palo Alto, Rentals in Palo Alto, Investment Properties in Palo Alto  |  July 23, 2013 7:58 AM  |  1,119 views  |  3 comments

    When A Tenant Stops Paying Rent Most rental property owners eventually face this question – what to do when a tenant stops paying rent?  Rent problems often start with several months of late payments or partial payments, and if left unresolved may escalate to no payments at all.  Even tenants who are behind on their rent have rights, so it’s important for landlords to take action as soon as possible and as prescribed by law to protect their investment.

    Here are a few tips for dealing with the unfortunate situation of when a tenant stops paying rent.

    1.    Contact a local attorney.  Landlord/tenant laws and regulations often vary from town-to-town.  Have an attorney who practices in the town where the property is located explain local rules for late rent collection and eviction and help you develop a plan of action.

    2.    Communicate in writing.  Regardless of tenant’s rights laws and the specific collection or eviction process you use, avoid “he-said, she-said” verbal misunderstandings and mistakes.  If you end up in court, you’ll need a paper trail that documents how you complied with regulations and delivered proper notices to demand payment.  Even if you’ve had a cordial relationship with the tenant in the past, late or non-payment of rent is a game-changer.  You may want to hire a professional property manager who is familiar with these situations to deal with the tenant on your behalf and support your attorney until payments are caught-up or the eviction process is concluded.

    3.    Continue to abide by the lease.  Until the tenant has vacated the property, they retain all the rights granted by the lease and the law regardless of whether or not their rent is paid current.  Do not disconnect or discontinue landlord-paid utilities or services, such as water or lawn care.  Make timely repairs when requested.  Do not harass the tenant or disturb their “quiet enjoyment” of the property.

    4.    Inspect the property.  Unfortunately, when a tenant stops paying rent it is common for them to abuse the property.  It is also common for tenants undergoing eviction to claim that the landlord has failed to maintain the property or make repairs when requested.  Unless otherwise advised by your attorney, schedule a thorough property inspection as soon as rent problems start.  Confirm there is no deferred maintenance that would make the property uninhabitable or violate the terms of the lease.  Be sure to give the tenant proper notice of the inspection and document everything with photos and/or video. NOTE: Many landlords make the mistake of photographing only items that need repair.  It is equally important to document that the property is in good condition and that systems and appliances are working properly.  If possible, ask the tenant to sign the inspection checklist stating that there are no problems with the property.

    5.    Follow your attorney’s advice on resolution.  Whether you want to evict the tenant or merely get the tenant caught-up on rent payments, follow your attorney’s advice and follow the steps prescribed by law to reach the desired conclusion.

    6.    Reduce the risk of future tenant problems.  Learn from problem tenant situations and implement strategies to reduce the risk of future occurrences.  Thorough tenant-applicant screening is generally considered the most effective method of reducing tenant problems.  Some landlords prefer annual leases rather than month-to-month or collect rent at the property personally so the tenant knows they are always watching them and the property.  Find strategies that work best in your situation.

    7.    Help other landlords.  A service that property owners and managers can do for others in the rental property business is to give honest responses to tenant screening inquiries.  If a tenant has been late on payments, disclose that when the tenant applies to rent another property and you receive an inquiry from the potential new landlord.  You’d want that landlord to do the same for you.  Just make sure that all inquiries and responses are in writing and can be supported with documentation.

    NOTE: This article is not intended to offer legal advice.  Consult with an attorney whenever faced with lease compliance issues.

    If you have questions or need help with property management or taking action when a tenant stops paying rent (or other problems), read about our Property Management Services or drop me a line:  Contact Us.

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    John A. Souerbry & Associates/Real Estate   (CA BRE 01370983)

  • Three Simple Ways To Increase Rental Profits This Summer

    Posted Under: Rental Basics in California, Investment Properties in California  |  June 20, 2013 2:06 PM  |  934 views  |  No comments

    Three Simple Ways To Increase Rental Profits This SummerSummer is not only when a lot of homes are bought and sold, it’s also when many renters relocate or renew leases.  Rental owners and property managers can use this opportunity to review their rental operations and improve their bottom line.  Here are three simple ways to increase rental profits this summer.

    1.    Conduct A Market Rent Analysis

    A Market Rent Analysis (MRA) is a simple look at comparable rental properties in your market and the prevailing rents they charge.  Knowing how your property compares in terms of location, features, condition and price will help you determine if rents can be increased in the coming year without affecting your vacancy rate.

    2.    Do “Internal Flips”

    As tenants vacate this season, use the opportunity to remodel and improve vacated units and make appropriate rent increases.  If your unit is in a multi-family property, do an “internal flip” by giving existing tenants in other units first crack at leasing the updated unit before you advertise it on the open market.  When they move, update their unit and increase the rent on that one, too.

    3.    Allow “Non-Performing” Leases To Expire

    Owners and property managers should analyze individual tenants to determine if they are helping or hindering profitability of the property.  Tenants that cause excess damage, are habitually late with rent payments, have several NSF checks returned each year, have frequent, verifiable complaints against them or are guilty of constant lease violations are a drain on management resources and profitability.  Rather than simply raising the “non-performing” tenant’s rent to cover extra costs, which is sometimes not possible in rent-control areas, the best thing to do is provide appropriate notice that you will not be renewing their lease.  Make sure the termination is conducted according to all applicable state and local laws.

    If you have questions regarding these three simple ways to increase rental profits or need property management services, please drop me a line:  Contact Us.

    About us:  California Property Management Services.

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    John A. Souerbry & Associates      (DRE 01370983)

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