Days on Market for Rental Properties

I was asked the other day how the wintertime is affecting our rental rates. Even though we are entering the late fall period, we are still renting all of our properties without a problem, so traffic is still there. Instead of averaging 21 days on market in the summer, we are now at around 32 days, however.

A few of the added days on market could be eliminated by us being stricter with our owners on price competitiveness. One method that works quite well is to have a loss-leader rate in your advertising (e.g. $900 for 6 months), where you can negotiate a higher lease amount for the additional months. This is a lot better than waiting 2 months to get your desired $1,100.

The goal is to get eyeballs and calls on YOUR ad... not the others. Once you have a conversation going, the deal is typically yours.

Scott

Investor Competition Heating Up - Time for Turn-key Rentals?

Competition for Denver residential single-family investment homes, at least at the wholesale level, has picked up dramatically in the past 2 months. We understand this is due largely to a massive amount of out-of-state money moving in, making cash offers, sight unseen with no inspection contingencies. It is very hard to compete with this, though Echo Summit is still having success via its network of investors.

Given this phase of the market, it is probably time to start thinking about purchasing turn-key rental propertes, and aiming for cash flow, rather than short-term cash-on-cash return. Obviously, almost any property held for a minimum of 5 years will produce some form of cash-cash return based on appreciation alone. What I am a suggesting is to focus away from the masses who are hoping for quick returns on a wholesale flip, and target areas/property types that they are not.

Without getting into the boonies, I recommend focusing on transportation corridors (SSE is off the charts) and anything feeding into the Cherry Creek School District (for those of you who don't know what bond proposals 3a and 3B were for in recent elections... study up. They passed, and will have significance for property valuationn in the coming years).

Scott

Great Website for Zip Code Demographics

We now use this for our Available Rental Properties. Information seems to be accurate...

http://www.bestplaces.net/

Taxes on Passive Investment Activities

Upon sale of an investment property (as a passive investment activity), different tax rates apply towards different elements of the property:

Ordinary Income
- Personal property depreciation

Long-term capital gains
(15% for taxpayers in the 25%, 28%, 33%, and 35% tax brackets )
- Building / improvement depreciation

Short-term capital gains (Ordinary income tax rates up to 35%)
- Everything else

Critical Elements of Tenant Leases - 1

Over the past few months, I have reviewed many, many home-grown and 'Realtor-provided' tenant leases for individual investors and homeowners who are trying to go it alone in the property management route. I have been shocked by what I have seen.

My philosophy is that manageing your own property is always the #1 option... no matter what a PM company says, nobody will give it the care and attention that you will.

Tenant leases are different. This is where you can loose your shirt, your home, and sometimes both. I have spent over $20,000 in legal, financial and other fees over the years on creating the 'perfect' lease. Even with a perfect lease, it is easy for a career rental abuser to make the 'apparently perfect' application package. You will love them. You will empathize with them. You will want to have a drink with them. Then they will squat in your property for 6 months without paying rent, knowing there is nothing you can do.

Please, please, if you DO do your own tenant leasing, make sure you:

• Do not give more than 5 days grace period before posting a Pay or Quit noitice. This will be their first test for you.
• ENFORCE late fees. Behavior is learned, not inherited.
• Mandate they carry renters insurance. I make them add myself or Echo Summit as an additional insured under the Liability section.
• Include a PAYMENT OF FUTURE RENT provision that allows you to accept partial rent payments in the middle of the evicton process (otherwise, you have to re-start the eviction clock every time you collect a penny)
• Here are some good free forms that I am happy to share with you

Many other elements to consider, but at least make sure of these.

Scott Lukes
Echo Summit Properties
http://www.echo-summit.com/

Re-keying a Critical Issue - Our Technique

In my conversations with property managers, I am still surprised at how few PM companies do not change locks after acquiring a property from an owner. I am guessing the same goes for home buyers when they purchase in a consumer deal.

The fact of the matter is that you DON'T KNOW the property is secure unless you personally had the property re-keyed while it was under your management. From a 'plausable deniability' perspective (yes... a huge West Wing fan) this is huge. From a liability perspective, this is life/death.

At Echo Summit, a good system we have employed is to have the Owner pay for initial re-keying (we hire the vendor to conduct it), and have the Resident pay for subsequent re-keying after they leave the property (we withhold from their security deposit).

Scott Lukes
Founder
Echo Summit Properties
http://www.echo-summit.com/

Incredible Time for Property Management

I have been constatnly surprised as to the make-up of our new customer base. Not surprised that half of our new customers are 'unintentional investors' who have/need to move but don't want to sell their house, but VERY surprised as to the magnitude of the homes coming to us.

In a given week, it is not uncommon for us to take on multiple homes that are in the $500k and up range. A few weeks ago, we even had a $1.5M and a $600k in the same day. Perhaps more important, these homes are renting... some of them VERY fast. Cherry Creek School District is a huge driver (they are typically on the market for days), but expensive properties are renting in all areas as well (might take 4 weeks to move something in east Aurora, but they do eventually move).

Scott Lukes
Founder
Echo Summit Properties
http://www.echo-summit.com/

Real Estate Negotiating Tactics

Real estate investors tend to settle into a set style during the negotiation process, and most of the time it may work well. It always pays to keep these major 'classes' of negotiation tactic in your back pocket, however:

Standard Practice Tactic
Getting the other party to agree to certain standards and common practices that commonly define such deals. Propensity towards automatic compliance is great. You can also have official forms that are pre-printed with items in your favor.

Bogey Tactic
Use a bogey, third-party bad guy to be the focus of ‘why it has to be this way’. E.G. “The bank will not lend me more than 70% LTV based on the rental trends in this area, and I only have $15,000 for a down payment”. Best if the bogey can be governmental/ regulatory.

Nibbling Tactic
After the major agreements have been made, nibble away at the smaller things to gain advantage. Post-inspection, perhaps. After seller has psychological ‘sold’ mind-set, they will typically make last minute concessions. Repairs, appliances, roofing,

Good Guy/Bad Guy Tactic
Get the person over to your side by being a confidant. “Listen, between you and I, I really want this to happen. My partner is demanding that we discount the property by 20%... I am confident I can talk him into 10% though if we act immediately.”

Deadline Tactic
Put pressure on the other party to react to your proposals. If anything, lets the other party know that there are other proposals you are considering, and that this one stands to fall through the table if a quick transaction is not achieved.

Scott Lukes
Echo Summit Properties
http://www.echo-summit.com/

A Historic Crossroads for Denver RE Investment Opportunities

For those considering entering the real estate investment market or expanding your portfolio, this is an incredible time! The Denver Metro area is in a soft period where there are historically high inventories of properties on the market. And as you are likely aware, Denver recently earned the dubious distinction of ‘foreclosure capital of the nation.’ Bad news? Hardly. Together with the facts below, this could be a tremendous opportunity for you to either enter the real estate investment arena, or to add to your existing portfolio of properties.

The Facts
Mortgage rates at a 4-year high. 2 issues here… first, rising interest rates are forcing more and more would-be homebuyers (and one-time homebuyers going thorough foreclosure) into the rental market. Remember… a 1% increase in interest rate on a 100,000, 30-year fixed loan at 6% adds over $65 to Principal and Interest payments alone! (our Investment Analyzer is a great tool to play with the tradeoff in Interest Rate and P/I payments) Second, while we are still at historical lows rates, they will only get higher (we have already seen a 1% jump over the past year).

Vacancy rates are incredibly low, and rents are rising. Recent studies for the Denver Metro area show a ~6% vacancy rate for apartments and single-family residences. This is less than half the vacancy rate we experienced in 2002 and 2003.

Unlike other areas of the country, Denver has experienced only moderate appreciation over the past 5 years (here is a good site to view Devner RE appreciation in the various areas). Where other areas of the country could experience radical declines in property values, most agree that Denver will sustain a slowdown in growth, if anything at all. There is really not a lot of risk in the Denver market.

Results
All of this adds up to an amazing amount of quality inventory, with very motivated sellers, reasonable financing still available, and most importantly, a strong and growing rental market. Supporting this, we recently put two of our own properties, one in Fitzsimons and one in Walnut Hills, up for rent. After a week of listing them only on RentClicks, we had 2 offers on each property from well-qualified tenants. We also recently raised our rents 7-10% for our other properties, and the tenants did not lift an eyebrow.


Scott Lukes
Founder, Echo Summit Properties
http://www.echo-summit.com/

Zip Sheet: Hot Denver Real Estate Investment Opportunities

Echo Summit provides Zip Sheets to our customer base as a part of our services. Zip Sheets contain hard-to-find information on hot real estate deals in the Denver area. Most of the information in a Zip Sheet will have a shelf-life of only a few weeks, as hot deals tend to disappear quickly. If you are interested in subscribing to our Zip Sheets, please email me at scott@echo-summit.com



Echo Summit is coming across high-quality, ‘must sell’ properties in hot areas on a frequent basis. For friends and existing clients, we strongly recommend the Fitzsimons, Walnut Hills, and Cherry Creek Vista areas for the rest of 2008. Fitzsimons you have likely heard about, but few people are talking about the latter 2... yet.


Fitzsimons
While $billions have already poured into the project and the area, about $7 billion more has been committed for the next decade। This area, if you are not aware, will become the premier bio/healthcare-sciences research park and medical center in the country. The key point about Fitz is that the investments are now starting to become evident in the form of hotels and larger corporate presence (think Chipotle, etc). Property values should soar in the near future. At ~$155k for a good 3/2 SFR, you can easily get you into this neighborhood and cash flow with only 10% down. More investors will flock to this area when they see the investments and the physical changes to the area, so for Fitz, you should buy soon.

Walnut Hills
Simply put, Walnut Hills is one of the least expensive neighborhoods you can still be: 1) close to I-25, 2) in the ‘good’ part of the Cherry Creek School district, 3) walking distance to light rail and 4) walking distance to world-class shopping and entertainment (by Elephant Bar and CB & Potts off of Arapahoe)। I recently picked up a mint $275k property for ~$230k, which is literally walking distance to the Arapahoe lightrail stop (and feeds into the Campus Middle School and Cherry Creek High School). Rent is ~$1,550... phone rang off the hook the day I put it up for rent.

Cherry Creek Vista
Next to CC reservoir, walking distance to Light Rail and Del Frisco’s, good CC schools and streets with $500-600k houses, $700-900k houses, and $260-350k houses… ALL NEXT TO ONE ANOTHER. In the near future, the $260-350k houses are likely to experience a dramatic upward swing. In the meantime, this neighborhood feeds into the best schools in the state, has a brand new swimming pool and rec center, is a fantastic place to live, and has VERY FEW rentals. You could likely get into this neighborhood and cash flow with 20% down.



What to do next
If you are interested in Echo Summit tracking any of these areas for you and presenting you with opportunities, we would gladly do so. Remember, buying is free to you. Make sure you are pre-qualified and ready to move, however. Sometimes we will have to move fast to get the best properties at the best price.

If you would just like to sit down and talk about any RE topic, we would be happy to do that as well!


Scott Lukes
Founder, Echo Summit Properties
http://www.echo-summit.com/

Minimizing Out-of-Pocket Closing Costs #1

Instead of offering $97,000 for a property, offer “$100,000 with $3,000 in Seller closing costs and/or prepaids.” This allows you a ‘free’ way to finance your closing costs, and not pay for closing costs with expensive post-tax dollars.

Not only will this maintain higher property values for the area, but it really makes no difference to the Seller (they get $97k regardless… likely tax free).



Scott Lukes
Founder, Echo Summit Properties
http://www.echo-summit.com/

Did you pull a permit for that?

You are touring through a nice home and are admiring the custom enclosed porch, which has been included as a part of the properties square footage. Any time a properties structure has been modified (or even a new furnace installed), make sure that the Seller has pulled the appropriate permits and has performed all necessary inspections before making an offer.

Why is this important? Let’s say a fire starts in the wiring junction box of an addition that was built without permits. In most cases, your insurance company will not cover losses to any part of the property if they are caused by the addition. Also, if a fire breaks out in the main part of the home, damages to the non-permitted addition will also likely not be covered.

When you ask, make sure they deliver the actual signed permit paperwork. As a sanity check, visit county records to make sure any additions have been properly recorded. This is a good signs that the appropriate permits have been pulled.

Scott Lukes
Founder, Echo Summit Properties
http://www.echo-summit.com/

Contesting County Property Assessments - 60% of all assessed property is over-assessed

Statistically, 60% of all assessed property is over-assessed, and over half of homeowners who appeal are granted some form of concession. Fewer than 2% of taxpayers appeal, though. Especially if you have propertyin depressed areas (such as Aurora), you are likely giving free money to your local government.


Tips:

• Find your county assessor at www.naco.org.
• Write to your county assessors office and show your assessment is higher that recent comps in your neighborhood (found at www.domania.com and other sites).
• If possible, have a profesional Realtor (such as yours truly) prepare an official assesment... this will hold more weight with the assesor
• National taxpayers union www.ntu.org has a booklet on how to fight property taxes as well।
  

Scott Lukes
Founder, Echo Summit Properties
http://www.echo-summit.com/

Welcome... Echo Summit Properties

Good day, and thank you for straying over to our blog.

You are either 1) lost, or 2) hopefully a real estate investor or property owner looking to achieve your next level of goals in real estate. If you fall into the latter camp, please give us 2 minutes of your time. It will be time well-spent. No, this is not an infomercial, and we are not selling you anything.

Over the past 2 years, we have been putting together the framework for Echo Summt Properties (http://www.echo-summit.com/) a Property Management and Real Estate Investment firm specializing in the Denver market. Echo Summit was founded by Silicon Valley entrepreneurs... now professional real estate investors... who understand how to profitably acquire and manage rental properties.

Echo Summit, above all else, strives to become the de-facto knowledge post for Denver-area Real Estate Investors and property owners. True, there are a lot of resources already available on the web. If you are like us, you have your own personal 'hot links' documents and 'trades lists', linking together all of your favorite discoveries over the years. The first thing we did is consolidate a lot of those resources, so that you don't have to go on a treasure hunt every time you need a piece of information. Here are a few examples:



Real Estate Investment Analyzer (this is a link)
Allows side-by-side comparison of up to 6 properties. Includes CAP rate, Cash-on-Cash return, Cash Flow and other key metrics.



Analyzing Deals and MLS Listings
Fast and thorough analysis of potential deals is a critical skill for finding the hidden treasures. This detailed analysis shows a foolproof step-by-step technique.

Advanced Purchase Techniques
Ask not IF it can happen, but HOW it can happen. This is one of our guiding principles at Echo Summit. It is easy to say ‘no’ to an apparently complicated deal or situation. This is what most people do. This is also what helps set Echo Summit…and most of our clients apart. The tips below are proven strategies for acquiring, refinancing and even leasing properties.

Calculating Gain
Sounds simple, but most investors don't have a grasp on this one. This is a very serious area, as there are many deductions and formula variables that sellers (and their accountants!) miss regularly.



Denver Zoning Maps
Identify zoning classifications by address or map-click. View results via precompiled maps and related links.






Detailed Denver-area School Information
A detailed collection of resources for those looking to relocate or move.



So... many more posts to come, and we don't want to wear out our welcome. Thank you for your 2 minutes, and please visit our blog frequently.


Scott Lukes
Founder, Echo Summit Properties
http://www.echo-summit.com/