Matthew Whitaker -
Friday, November 21, 2014
Last month, in our ongoing effort to cover Birmingham real estate, we covered real estate statistics from this summer. Since then, the Alabama Center for Real Estate (ACRE) has released updated statistics from the month of September. These stats are important to review because September is often a transition month in local real estate, one in which buying and selling both begin to taper off headed toward the winter months. The first stat we’ll examine is the median home price. For the state, it stood at $129,511, an increase of 4.51 percent from September 2013. In Birmingham, it was $175,000, with an average price of $215,830. As we anticipated, prices are continuing to rise on a month-to-month basis. Supply is still decreasing across the state. There were 32,992 homes listed, a drop of 2.49 percent. In Birmingham, that figure stood at 7,099, which is 21.5 percent of the state total (or a little over one in five). There are eight months of supply in the statewide market, and only six months of supply in Birmingham’s market – suggesting that the metro area is in equilibrium with a balance between buyers and sellers. This is one of the first times we have seen the beginnings of a balanced market in this area. Homes aren’t taking as long to sell, either; the median days on market figure stood at 148 (81 in Birmingham), down by eight percent from the 161 days homes spent on the market in September 2013. Compared to other parts of the nation, 81 is high, but it is significantly lower than it has been over the past few years. As supply continues to dwindle, this figure should drop, and homes should not only sell faster, but should also sell for more. Conditions are still ripe for purchasing, and are improving as far as rental rates and vacancy rates are concerned. We anticipate that the rental market will continue to increase through the end of 2014, based on current trends.
Matthew Whitaker -
Wednesday, November 19, 2014
Property owners and investors all face the same dilemma whenever they purchase a home: should we manage the property ourselves, or should we hire professional property management? We are property management specialists, so we are obviously biased. But we understand that owners have legitimate concerns – and sometimes have a hard time choosing between the two options. On Nasdaq.com, the folks at Motley Fool wrote an article titled “Hiring a Property Manager Vs. Self-Managing: Which Is Better?” and tackled this issue. Here, we’ll review their conclusions and offer a few of our own. Reasons to Choose Property Management In their article, Motley Fool offered three main reasons why it’s preferable to hire property managers, including: – An infrastructure is already in place (including leases, applications, screening procedures, payment procedures, and knowledge of laws and regulations) – Saving time by having professionals manage properties for you – Outsourcing headaches, such as dealing with problems and angry tenants All of these are very valid reasons. On top of the above three, we’d add two more: – The ability to have professionals market your property for you – On-site maintenance staff that can handle maintenance on your behalf But what reasons did they give for doing it yourself? Reasons to Self-Manage Motley Fool came up with five reasons to go it alone and manage the property yourself. They include: – Saving money by avoiding the fees charged by management companies – Avoiding fraud and deceptive managers – Having increased control over your property – The ability to gain experience by hands-on managing – You care more than anyone else about your properties As you can imagine, we think there are important things that need to be pointed out about each of these. As far as saving money goes, you get exactly what you pay for. In other words, you are paying fees in exchange for knowledgeable and trained professionals who can help you take your properties to the next level and provide a wealth of services. Plus, you are essentially trading money for time – and you’ll often find that your time is far more valuable than 10 percent of collected income. As far as fraud goes, there are bad apples out there. If you go with proven managers with track records and reviews to back up their record, though, you can avoid this and gain an invaluable ally. And while it’s true that managing properties yourself will give you experience in real estate and in property management, gaining experience takes time and leaves you vulnerable to a million things that can and will go wrong without an experienced hand to guide you. In addition to problems posed daily by tenants who have valid (and invalid) complaints, you have to market properties, screen potential tenants, maintain properties, and navigate a labyrinth of regulations and laws – all of which can become disastrous without years of experience. Finally, we know that we care about your properties as much as you do – and demonstrate a stellar level of concern when it comes to your portfolio. It is possible to find property management that is as dedicated to your success as you are. In the end, managing a property yourself could work out for you – but chances are, you’ll be faced with difficulties and challenges that are either too great or numerous to overcome or simply not worth it. That is why hiring property management is almost always recommended for property owners.
Matthew Whitaker -
Wednesday, November 12, 2014
In property management, attracting the right type of tenant is vital. This means being competitive with your listing, marketing your property properly, and – naturally – making your rental unit stand out. One of the best ways to accomplish this is to remodel your rental unit. But should you take that step? When does it help? And what should you focus on if you do decide to start a remodeling project? The Benefits of Remodeling At some point, virtually every property owner takes a moment to think about what he or she can do to improve their properties, especially in a bid to attract tenants. Some choose to have professionals remodel the interior or exterior, or do the job themselves. It costs money, which may not fit into the budget (especially for a low-rent property), but the trade-off – a better-looking home that is more marketable – could be worth it. Of course, you should only remodel if you think the added perceived value will either justify a higher rent or will attract steady tenants and boost your occupancy rate. What You Should Focus On Should you decide that the cost of remodeling is outweighed by the benefits – and that could very well be the case, especially in a competitive market like the Birmingham metro area – you can save money and effort by focusing on a few key areas. For starters, adding a bathroom or bedroom (or transforming a room into a bedroom) can add a lot of value, but could be prohibitively expensive. If this is the case, don’t worry; you can conduct limited renovations in key areas. The kitchen and the bathroom are two key rooms that can benefit from remodeling. Focus on surfaces. For the kitchen, this means your appliances and your counters (as well as your back splash); for bathrooms, this means your walls (like with tile) and your flooring. Making the Decision Remodeling money often comes out of a maintenance budget, and for this reason, many owners will elect to keep that money in reserve in case they need to make a costly repair and forgo remodeling. If your occupancy rate is high, and your tenants are satisfied, you may not need to touch the home other than to repair it. But, if you want to attract more attention, or want to make your home more competitive in a tight market, remodeling may be the right call. Consult with property management pros for more help making the decision and pursuing the project.
Matthew Whitaker -
Friday, November 7, 2014
When it comes to property management and real estate investing, you want to make sure you have a sound investment. We recently talked about how you can determine if a particular property will make a good investment, but mostly touched on financial calculations you can make. What also matters is the economics behind the property, specifically the property value. Property value is essential in determining if a particular investment is a wise decision, and understanding how property value is influenced will help you make this determination. Here are several main factors that contribute to affecting how much money a property in a particular area is worth. The Home Itself All homes are judged in comparison to all other homes like them in a given area. Thus, determining property value depends largely on how well a home stacks up compared to other, similar homes in the neighborhood. For example, a 3/1 is at a disadvantage on a street full of 3/2 homes. A 4/2 with a big, fenced-in backyard has advantages over a 4/2 on a small lot with a small or nonexistent yard. A 3/2 with a renovated interior is viewed as better than a 3/2 (or even a 4/2) with a sub-par interior. Performing a comparative market analysis of a given property will help you make this evaluation. Commercial Property Outside of the home, property values are partially determined by economic opportunities available in the surrounding area. In urban or suburban environments, this means commercial businesses. A neighborhood that is in close proximity to a thriving downtown entertainment district, for example, will enjoy a boost in the value of its homes compared to a neighborhood that is isolated. This is also why you see property values go up shortly after a major business moves nearby. Economic development in an area drives up property value for a variety of reasons. School Districts If you’ve tried to buy a home in an area that has a high-performing school district, you know exactly how much a good school can drive up property values. Families who have the freedom to choose their neighborhoods do so on the basis of school districts above any other single factor. That single factor alone is what drives up property values for Birmingham suburbs like Vestavia and Homewood and Hoover; their schools are thought to be superior to Birmingham city schools, which is why families who can afford to live outside of the city often choose to do so. Proximity to the Urban Core Finally, one major factor is how close the area is to the urban core. Generally speaking, the closer the home is to the city, the more expensive it will be per square foot. Note that this only applies to areas outside of the city limits; Birmingham city homes are often cheaper than homes in the immediate suburbs. But it’s also why you can get more home for your money in outlying stretches of Hoover, compared to comparable homes in Vestavia, Mountain Brook, and Homewood. You’re trading convenience for size and per-square-foot cost. There are other factors that play a role in property value. Contact us for more information on finding a smart investment in the Birmingham area.
Matthew Whitaker -
Wednesday, November 5, 2014
At gkhouses.com, we succeed when our property owners succeed. Our approach to property management is simple: we want our owners to have the best chance at success with their properties through agile and dependable professional property management. Part of that is providing counsel to our owners on real estate matters. One major concern that every investor often has (and one that they should have) is whether or not a particular property is a good investment. It’s not as simple as saying, “The house costs X dollars and I think I can get Y dollars in rent from it each month” and assuming that that is the only calculation you’ll need to make. You have to probe a bit further to really see if this particular property is better than that property. To evaluate a property – especially when compared to other properties – you need to first determine your gross effective income. This is your scheduled rents – how much you’ll make each month (extrapolate it for a 12-month period) – minus market vacancy and tenant turnover costs. In other words, determine how often tenants come and go, and figure out how much it will cost you, on average, to get the property ready for the next tenant. Once you have done that, you have to calculate fixed and variable expenses. Property tax bills, hazard insurance policy premiums, and utilities all factor into fixed expenses. Professional property management is also a fixed expense. Variable expenses include replacing major systems within the home. You can estimate if you’ll have to cover these costs by determining how old each system is or how long it’s been since a system (such as HVAC, the roof, etc) has been replaced or modified. Take all of these numbers and subtract them from your gross effective income to get your net operating income. Subtract your mortgage payments from that number to get what’s left over. If it’s a negative number, this property may be a bad investment. Performing due diligence on a property is extremely important to determine if it is a good investment. Contact us if you have more questions about evaluating properties and a market.
Matthew Whitaker -
Sunday, November 2, 2014
The real estate market today is marked by several prominent trends that impact everyone from homeowners to tenants and property owners/investors. One trend is a steady increase in home value. Another trend is tight supply throughout the country. And another trend – perhaps one of the most important in terms of overall implications for property management – is the reluctance of the younger generation to buy homes. This piece from the New York Times tackles the growing trend of young adults who forgo buying homes and instead choose to rent. They primarily handle the issue from the standpoint of adults who rent apartments, but the same lessons apply to single-family homes. In short, the trend is simple: adults aged 18 to 34 are choosing to rent in droves, instead of doing what their parents and grandparents did and buy a home. Some of these have previously purchased a home and, for whatever reason, decided to get out of homeownership and rent. Others have never attempted to buy and have been stalwart renters and eternal tenants ever since high school and college. Reasons for this vary. Perhaps the main reason is that for many of these young would-be homeowners, getting a mortgage is highly difficult, if not impossible. It’s easy enough for veterans, who have access to zero-down-payment VA loans, but for everyone else, it has become next to impossible. A higher difficulty in getting a mortgage directly translates into a lower homeownership rate, not just for these young tenants but for older people as well who have either been burned by bad experiences in homeownership (such as foreclosure) or have been wary of the housing market and what it has been like over the last decade. The implication from a property management standpoint is clear: the 18-to-34 demographic is ripe for business, and will constitute one of the main targets for property owners and investors for the future as this generation grows and advances. Some of them will eventually buy a home, especially once they are able to afford it, but many will still want to rent even as they mature and get older. This means that property owners should have a definite interest in courting members of this generation, and should tailor their properties to match the needs and desires of this demographic.