Should You Give Rental Concessions to Existing Tenants Before They Ask?

In the last few years we have seen several trends for retail properties; everything from positive outlooks, to “are we on the brink of a retail apocalypse”.  

It can be quite disarming to try to determine what to believe.   One thing though will remain a truth throughout all of the changes, and that is…

If a landlord does not adapt to the changes we will see then they are sure to bear the brunt of any downturn. Put another way, “By failing to prepare, you are preparing to fail".  

It’s definitely one of my favorite Ben Franklin quotes, but what does that mean for a retail landlord that may be locked into long term leases?

One of the tools an experienced landlord has at their disposal is the ability to reposition the lease to either create value, or assist a tenant during hard times. 

During a slowdown in the economy a tenant may approach a landlord and ask for rental concessions as their sales may no longer support the rents they are paying.  Before agreeing, the landlord should take the necessary steps to determine what is best for their interests. 

The first step of course would be to determine whether or not the tenant actually needs a rental concession, or if they are just asking to increase their bottom line. 

A landlord should ask for not just the guaranteeing entity’s financials but also the financials specific to this location.  If the tenant is unwilling to give it up, then they are likely not in dire need of the concessions they are asking for.  

The next step is to determine whether or not the tenant is paying market rate rents.  If the tenant is already paying less than market rate rents, then it may be more prudent to offer them a buy out of the lease, and then renting to a new tenant that is at a higher rate.  

However, if the tenant is paying market rate or higher rents then a landlord needs to closely look at options they may need to consider. 

For instance:  What is the current market vacancy for the area? How difficult will it be to lease the property at market rate?  How long will it take?

If you do lease the property at market rate what concessions would you have to give a new tenant?  By knowing all of these factors ahead of time a landlord will know immediately what steps they should take if

Why Now is a Good Time to Buy NNN Properties

Many of these types of properties are typically single-tenant retail properties that are occupied by tenants with varying credit ratings on “net, net, net” terms, meaning the tenant is responsible for real estate taxes, insurance, and all maintenance. Many of the properties have high credit rated tenants with proven business models and many even have corporate guarantees. You also have the other end of the spectrum, including strip centers with a mix of small mom and pop shops and franchises that may or may not have a guarantee by the tenant.

Many real estate investors like triple-net-leased properties due to the ease of management, since the tenant takes care of all bills, maintenance and repairs. Many consider these investments to be equivalent to a bond, especially with a strong tenant with a long-term lease and a corporate guarantee. The current timing in the market could be ideal for Triple-Net assets as we are potentially heading into a bit of a slow down with the economy and the real estate market, and this asset class tends to hold its value better than most. I spoke with the George Pino, CEO of Commercial Brokers International, to get his thoughts on why now is a good time to be buying Triple-Net properties: “Now is a good time to take advantage of the low interest rates being offered for NNN properties. With current CAP rates, combined with low interest rates, we’ve been able to identify investments that can easily output a pre-tax seven percent cash flow, with a credit worthy tenant. This return, when combined with the tax benefits of real estate ownership, is outperforming almost every other passive investment alternative in the market.”

With the landscape of retail changing you will want to be sure to do your due diligence as well as have great representation as you seek out your investment properties as there are potential risks. The credit rating on the tenant can be tricky as not all credit ratings are equal, with credit ratings being determined by one of the three ratings firms (Standard & Poor’s, Moody’s, & Fitch), ratings of BBB- and higher (S&P scale) are considered “investment grade.”

Triple-Net can be great investments but just like any investment the due diligence and strong investment fundamentals are key, that and good representation!

Why Now is a Good Time to Buy NNN Properties

Are You Liable for a Vacation Renter’s Illegal Activity on Your Property?

Are You Liable for a Vacation Renter’s Illegal Activity on Your Property?

I was recently speaking to a host of a vacation rental property and he had several questions about their liability as it pertains to the people they rent their place to. The main one being that if they would rent to a sex offender and the neighbors were to find out what is their liability, or worse yet, what would happen if the renter committed a crime on their property or in their community?. What are the responsibilities of an owner of a property in vetting out a tenant? Especially in the many states that do not differentiate between the percentage of responsibility vs. the percentage of liability. Common sense would dictate that an owner may be liable for them especially if they rented their home to a criminal or sexual predator and something were to happen; although, after a quick internet search I really couldn’t find a bunch of cases regarding this issue.

I do believe that having as much information on someone you are renting too is extremely prudent and many of the short term (vacation) rental sites make it all but impossible to run a background check because they do not publish the parties’ full identities in order to prevent the parties from going around their back to make deals out their control.

We as property / home owners that utilize these short term rental sites have a responsibility to our community, friends and neighbors and one bad tenant that creates a lawsuit for you can easily erase months or years of your investment income. In doing some research you will find that more often than not there are no issues with short term renters but if you are unfortunate enough to find one that does it can be a nightmare, a nightmare they may have been found with a simple $30 background check.

10 Questions a Landlord Should Ask When Interviewing Management Companies

Finding a reputable property management company can be quite daunting as it is difficult to really know how well the company is run. We have put together a list of items you should ask when interviewing a potential property management company.

1. How long have they been in business?

You want to associate yourself with an established company, as this speaks to a company’s length of service in the community.

2. Do they manage other assets in your area?

A property management company should have a presence in your local area, managing properties that are in the same asset class as your property. For example, if you own an apartment building in West LA, you should look for companies that manage apartments in West LA. The properties they manage may be available on the webpage, if not, ask this question while interviewing them in your initial conversation over the phone.

3. Are they carrying the proper insurance coverages?

The company should at a minimum carry general liability and workers compensation for their business. In addition, it is always wise to look for a company that also carries Errors and Omissions insurance.

4. Do they have their own experienced maintenance team or do they have to hire maintenance companies?

Many times smaller property management companies will outsource their maintenance. In addition to asking if there is an additional service charge for this, also ask how the management company vets their vendors (do all of their vendors carry liability insurance, are licensed, and have workers compensation insurance).

5. Do they have emergency services?

The ability for a property management company to handle every property incident, particularly emergencies, is crucial. At any time, day or night, a property manager must be equipped to handle emergencies that occur on your property. Communication is key in any tenant / landlord- management relationship – a toll-free number that is answered by a human 24/7 should be a mandatory service provided by any reputable management company.

6. What kind of reporting do they offer the property owner?

Are the reports sent monthly, or do the owners have online access? If the management company offers online access to the monthly reports, do they charge extra for this?

7. How do they set up the bank accounts for your property and will you have access?

Is there one trust account, or do they offer individual property accounts for each of their clients?

8. How often will they visit your property?

You want to make sure your property maintains its great shape. A world-class management company will ensure the grass is being cut, maintenance requests are fulfilled, and property regulations are followed. Visiting the property on a regular basis will ensure all maintenance work has been completed to the highest quality, as well as check to see that any other issues are addressed.

9. How detailed is their tenant screening process?

A reputable management company should thoroughly screen their prospective tenants, running a background and credit check, as well as looking for any prior violations committed on other apartment properties, available with Incident Reporting from providers such as theRRD.

10. Do they keep up to date with current laws?

Different municipalities have different laws related to rental units. Are they familiar with the laws, do they update their information/forms to comply with these laws, and are they up to date on any changes in the labor laws?

10 Questions a Landlord Should Ask When Interviewing Management Companies

Key Mistakes Property Management Companies Make and How to Fix Them

We speak to property management companies across the country daily so it allows us the opportunity to ask how they are handling their operations and then relay some of their ideas on to you. I recently asked a few companies what they have seen as some key mistakes that they have made.

1. Not Charging An Application Fee – Everyone will apply if you are not charging a fee. Also, your screening company charges to qualify your prospective tenant, so it’s appropriate that they pay for this cost through their application fee. Additionally, when you charge the fee you only get serious potential residents and you get paid for your time and effort.

2. Not Running Credit and Background Checks – Running credit and background checks helps identify the best tenants for your community by showing accurate credit, criminal, and eviction reports. There are situations that can cause credit issues (i.e. stolen identity) so please be sure to have them give an explanation prior to discarding their file.

3. Not Getting The Full Deposit Before They Move In – If they can’t afford it before they move in, then they most likely won’t be able to pay once they are moved in.

4. Choosing the Wrong Tenant – Be sure the person you decide on can afford the rent payment, a good rule of thumb is the rent should be about 30-40% of their income.

5. Not Maintaining a Stern Stance on Late Fees – Once you give up on collecting the late fee, you will find that more often than not, the late payments will only get worse. Typically the ones you let off the hook will speak to other residents and they too will begin making late payments.

6. Not Walking Your Property – Be sure to inspect the property before you rent it and we recommend walking the unit with the new resident the day they move in and make notes of any issues with the property.

7. Not Communicating With Your Residents – Keep your residents informed of anything happening on your property and try to talk to everyone if possible, let them know you and your team.

These simple steps can save you a lot of extra effort with new residents and set your investment off on the right foot to get you the best ROI possible.

Key Mistakes Property Management Companies Make and How to Fix Them