By Neil Fjellestad
So, I have some exciting news that will breathe fresh enthusiasm into your rental ownership. However, this rides alongside news that might send you into a nostalgic episode. Those of us of a certain age can be enthusiastic about modern life at times and then at other times become very nostalgic for an earlier era. Buying rental property is an example. I love internet tools that allow me to virtually drive the neighborhood, track the history of ownership, dissect the property information and compare to investment options before leaving my desktop or whatever device I might choose. However, none of these upgrades will replace the vivid memories of buying my first properties, orchestrating multi- legged 1031 exchanges or perfecting a system for selecting neighborhoods, buying owner-occupied homes and operating them as rentals.
Now in my 5th decade conducting rental real estate businesses I have seen an avalanche of change alongside many things that stay mostly the same. For instance, respect for renters is a given as it is the “silent partners” (renters, lenders and public tax policy) that allows independent owners to hold real estate long enough to make a positive difference to their personal wealth building and retirement income. However, seeing renters as customers has been a slow evolution. So slow, in fact, that we ignored, took for granted and often abused our customers to such an extent they resorted to demanding state and federal laws to protect their ability to find and secure housing. Besides a few owner and/or operator holdouts, everyone seems to understand how essential housing is to households and communities.
I have enjoyed a front row seat to the sea of change surrounding and as a result of the Federal Fair Housing Act as Amended in 1988, and the American Disability Act of 1990 (ADA). I was your volunteer representative to the National Apartment Association (NAA) beginning in 1987. During the ensuing 7-8 years I represented the interests of rental owners as the new laws were shaped and implemented. Though the U.S. and California had fair housing laws on the books going back to the sixties these amended federal codes had strict compliance protocols and enforcement teeth. NAA made key verbiage additions and, even during several rounds of test cases that further defined the original legislation, made input promoting a practical and reasonable approach.
I then spent nearly two decades speaking, training and consulting within the industry throughout the U.S. (29 states). At the heart of most of this coaching is that our renters are preferred customers; deserving customer care combined with a positive and practical approach to fair housing. Better and more frequent training is still needed. Residential Property Management (RPM) best practice is summed up by my industry colleague Nadine Green. “Any prospect who can provide third-party documentation of their ability to pay rent, and who does not have a record of criminal history or unfavorable previous rental history, should qualify to rent.” Make these your satisfied customers.
I mentioned exciting news. Here it is in a nutshell. Rental rates are going to rise steadily and cap rates on apartments are going to continue to be lower than you remember so every dollar of rent increase is relevant to increased real estate values. Local rental homes and condos will also yield an investment return that will hold the interest of beginning and experienced investors. These, held long term will enjoy additional appreciation as current renters will purchase later. Renovation of rental property that is carefully planned will enjoy an appealing value bump as well.
However, all these ownership benefits will be subject to the market approval of our rental customers. This will require interaction: asking, listening, timely responses, transparent communication that anticipates their preferences. You cannot escape customer demand by keeping your rent low! There is only one path forward. It is through a gauntlet of consumer protection and thorny customer relations. Our renters will not stand by during a property improvement that impairs or makes their life less convenient without your acknowledgement and compensation. Paying rent is going to be paid in a last minute, secure fashion that suits the rental customers, not your custom. Lack of communication on an unresolved issue will not be tolerated. If your ownership does not include being a full time operator with business hours it will not be your renter that is inconvenienced or feeling discriminated against.