OC Real Estate: 4% Rental Rate Increase Expected | Legacy ...

By JEFF COLLINS?/ THE ORANGE COUNTY REGISTER
Frank Allen, James Wohrman and Nicholas Dunlap are Orange County-based property managers who collectively operate more than 6,400 units and have more than 50 years in combined experience. The three appeared on the Apartment Association of Orange County?s economics panel during the group?s recent trade show at the Orange County Fairgrounds. Here are highlights of their comments ?
Q: What?s the outlook for the apartment industry?
Allen:?Rents are slightly increasing. Employment numbers are coming back, he said. ?I have guarded optimism for the next few months.? Rents, he said, are going up.
?We?re at 99.5% of where we were in 2008.?
But there?s a cost to rent hikes. Long-time tenants who got rent discounts when they moved in are seeing those discounts expire, ?and they?re getting quite a hit.? Many will move out. But there are plenty who are willing to pay that higher rent.
Dunlap:??I share (Allen?s) optimism.? Dunlap cited projections that apartment rents are expected to go up 4% nationally.
Q: Is the cost of tenant churn ? people moving in and out ? worth the rent hikes?
Wohrman:??We try to negotiate? with tenants. Perhaps they are more comfortable with an 11-month lease, or a lease for 14 or 15 months. ?There?s nothing magical about 12 months.?
He added: ?If the increase is big enough, you roll that dice. We moderate case-by-case.?
Q: What type of return should apartment owners expect for renovations?
Allen:?Age of apartment buildings are getting up to 30, 40, 50 years. Allen said he looks to improve kitchens, replacing cabinets and appliances. He uses appliances in more stylish colors, like pink or yellow, and has been able to take advantage of price drops for granite countertops.
Within $3,500, he can renovate a kitchen with new cabinets and countertops, he said. And a kitchen repair can generate $75 to $100 a month more in rent.
?You recapture that cost very quickly, and you?re tripling your return over the years,? he said.
Q: Where does someone start if they?re thinking of investing in apartments after they retire?
Dunlap:??Don?t wait until you retire. Start before,? he said. Today?s market is unique because investors can borrow money at 3.5% to 4% interest rates. And there are good buying opportunities in the two- to four-unit range and small properties.
?There could be some great opportunities across Orange County,? he said.
Wohrman:?Rental homes are another good option. ?You can buy a serious fixer-upper at an incredible rate,? he said. Wohrman has seen houses sell for under $200,000 and for as low as $85,000.
But, he added, ?do not buy a property any further from your home than you?re willing to drive on a Friday night to fix someone?s toilet.?
Allen:?Competition among investors has intensified, he said, because there has been a lot of money on the sidelines waiting to get back into the market.
?That time has arrived,? he said. ?There?s a lot of money out there chasing real estate, and people are buying buildings all cash with a 30-day escrow. You just have to find a new strategy.?
Allen also advised, however, that investors not wait until after retirement to buy rental units because there?s little or no cash flow for several years.
Q: The stock market increased about 9.5% from two years ago. What kind of a cap rates do investors need?
Dunlap:??I do not measure investments by cap rate. That?s NOI (net operating income) divided by the total value of the property. I look at cash flow.?
Wohrman:?We are so conservative. We haven?t won a bid for a property in 20 years.
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With rental rate increases expected and depressed home prices, its a great time to buy. Legacy Realty is Los Angeles and Orange County real estate leader. Legacy focuses on residential real estate and investment properties. Please visit Legacy International Realty?s website to take advantage of their IDX online So Cal and Orange County real estate search. Legacy?s IDX platform pulls homes directly from the MLS (the same system Realtors use) to ensure all property?s are?available?and up-to-date. While on the site take a minute and visit the ?OC Real Estate Blog? for news, information, and market trends: www.LegacyRealtyHomes.com
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