Moving Forward

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Moving Forward

Moving Forward

by Sonya Loera
Apartment News, Oct 2022

Even as students head back into the classroom, there is a growing acknowledgement that Covid is here to stay for a while.
What does this mean for us, as income property owners and managers?

Just as we had to learn how to survive and thrive when confronted with statewide rent control, we again need to apply the best practices of both good property management and informed decision-making.

With college campuses reopening, we are seeing an upswing in rental market activity. There are more inquiries and interest, and that opens the door to raising rental rates. Remember, the rent control law only applies to current residents. When an apartment becomes vacant, the rental rate can be re-set to whatever you want – at least in theory.
The reality is your rent rate still has to be competitive and that means doing some homework. After months upon months of everyone existing in hibernation mode, it is time to not only do a rent survey, but actual looking. Just checking a website, although helpful in establishing some baselines, does not provide a complete and true picture. An on-site visit is always the best.

This is the point at which you need to be 100% honest with yourself in both evaluating the condition and appeal of your own property and in judging the competition.

You also need to know and understand what type of renters are going to be attracted to your property and what rents are they willing and able to pay. And, you need to have a sense of what features these prospective residents are seeking and what are their “deal breakers.”

In fact, this is probably an excellent time to seek the help of a knowledgeable and trusted advisor. You want someone who is well versed in your particular property type and location; and who also knows what features and/or amenities command the best return on investment.

In conducting this type of rental survey there are three key factors to consider – the rent, the condition of the property and the inclusion of preferred features. You may want to set this up as a comparison grid with your own property listed first. The process is very much like what a real estate agent or an appraiser does for sales comparatives. 

The goal is to attain the highest rent possible. During this evaluation process, you may find that by spending a just little money you may be able to achieve higher long-term rents. Perhaps some exterior cosmetic work is needed. Maybe it is replacing kitchen and bathroom countertops. Or, it might be something like converting a back lawn area into a dog park, a children’s play area or a community garden.

Once the projects are identified, you need to do a cost/benefit analysis. Basically, the question is what will be the cost to make a given improvement (or set of improvements) versus how much more in rent will that feature or those improvements command?

Even if some level of capital expenditure is required, it might make sense to spend the money now and secure top rents today, so that you are well positioned to maximize your rental income moving forward. This is especially important given California’s statewide rent control mandate that places an annual percentage cap on increases after a property has been rented.

Remember, too, as noted in my previous article, entitled “How Long is Too Long” (Apartment News Magazine, August 2021 issue), income and expenses not only determine your cash flow, they also impact value. Today’s investors are taking a hard look at the fundamentals. They want to know that a property is generating or at least has the potential to generate a return and they are no longer counting on big price escalations that generate all of the profits at the time of sale.

You have to do the math to decide what is right for you and your property. Maybe you do not see the value or have the ability to make the improvements needed to attain top-of-market rents. That conclusion, in and of itself, may be a signal that now is the time to start looking at other options.

Sonya Loera
Agent, Manager DRE#01947308