Market Update | Piedmont’s Sale Breaks Records; City Studies Ballard’s Growth

Happy Friday! This week we’ve got lots of news from the rental market, including the historic sale of the Piedmont, growth in Ballard, and the success of neighborhoods which preserve some of their older buildings. Enjoy!

PSBJ: Bellevue’s Piedmont sells for $76.4 million

The recent sale of the Piedmont, an apartment complex in Bellevue, is making headlines. The Piedmont sold for $76.4 million, which is the highest price paid this year in King County, according to Dupre + Scott. It’s also 44% more than the complex sold for seven years ago. The building was sold to the Essex Property Trust, of California. Read more.

Seattle Times: Record-keeping not just important for landlords

Any experienced landlord or property manager will tell you: keeping thorough paperwork is essential. But as the Seattle Times reported recently, renters should also keep records. When apartment hunting, be sure to have a copy of your credit report on hand. Once you’ve leased a place, be sure to keep a copy of the rental agreement, as well as a note of rental payments and any fee payments. If you pay in cash, you should receive a receipt; you may also request a receipt for rent payments made by check, transfer, or other means. Maintain a file with any written complaints or requests for maintenance as well, and be sure to keep all of your paperwork for at least three years after you move out of the unit, too. It can seem like a lot to keep track of, but keeping accurate records now can avert potential headaches later. Read more.

DJC: City seeking guidance on Ballard’s growth

Ballard has been in the midst of a growth spurt for years now. New apartment buildings and retail spaces have moved in to streets that once had more of a small-town feel, and more development is in Ballard’s future. With this in mind, Seattle wants input from Ballard residents and business owners about their future vision for the neighborhood. To start the discussion, the city hosted an open house back on May 7th; and now it’s launched a website where staff from the Department of Planning and Development will answer questions, and residents can start discussions about the future of Ballard and the city at large. With the website, Imagine Seattle, the planning department hopes to engage younger residents. It’s part of a greater strategy to engage the public which also includes booths at public events. Read more.

PSBJ: Buildings with some history do better in the city

The Puget Sound Business Journal is reporting on a new study showing that, according to Marc Stiles, “neighborhoods that protect and find new uses for older, smaller buildings are more economically sustainable and culturally vibrant than those with only larger, newer buildings.” So why are these neighborhoods, such as Capitol Hill, so appealing? Part of the draw has to do with the opportunities for small businesses and cultural experiences in neighborhoods with a mixture of older and newer architecture. These neighborhoods also tend to be very walkable, appealing to both young professionals and older people who have retired. Read more.

Dupre + Scott’s Four-Year Rental Market Forecast

Happy Friday, everyone! Thanks to the release of the latest Apartment Advisor, we’ve got numbers on the current rental market, and how those numbers could affect the market forecast over the next few years. All of this data is courtesy of Dupre + Scott, who surveyed a full 88% of the region’s rental market for their findings. Enjoy!

Let’s talk about the rental market as it stands currently, starting with vacancy. Puget Sound market vacancy is currently sitting at 3.6%, down from 4% last fall. Vacancy has only been this low one other time in the past 25 years. If we focus on Seattle, market vacancy has actually risen slightly; it’s currently at 3.6% as well, but that’s up from 2.9% one year ago. Meanwhile, gross vacancy in the city is currently at 6.1% (5% in the Puget Sound region as a whole). It’s worth noting that both gross and market vacancy have fallen over the past year, despite the fact that developers opened over 7,000 new units (more on those below).

Low vacancy has continued to allow rents to increase over the past year; in the Puget Sound reason, it’s risen 7.5% during that time. Of course, some of that increase can be attributed to the fact that new units have been opening; new units, as we all know, rent for more. If we factor out new units, rents still rose 6%. When Dupre + Scott surveyed local apartment managers in March, 75% planned to raise rents; in total, rents should climb about 3% by September.

Falling vacancy and rising rents are all well and good, but what about all of these new units we can’t stop hearing about? As we mentioned earlier, 7,100 new units have opened over the past twelve months; that’s more in one year than we’ve seen since the early 1990s. Over the next four years, 40,000 are projected to open in the region; 89% of the new development will be in King County, with over 70% in Seattle. This urban shift is a departure from the past, when Seattle was just 1/3 of the Tri-County rental market.

So with all of these new units opening, what will the next four years look like? Here’s the quick forecast for 2014-2018:

  • Demand: Working with projected job market figures, the region will need 33,300 units over the next four years (that’s 7.5 jobs per unit of demand).
  • Supply: Just over 38,000 new units will be added to the market.
  • Vacancy: Vacancy may rise slightly over the next six months, increasing to about 4.6% by December. It will continue to rise somewhat through 2016, topping out at about 7% before beginning to drop, falling back below 6% by 2018.
  • Rent: Rents will remain fairly flat over the next few years, but they’ll climb 7.3% between now and 2018.

For more forecasts and data, check out Dupre + Scott’s Apartment Vacancy Report. And have a lovely weekend!

Q&A: Tax Tips for Landlords

Yesterday was the first day of Spring, which means warmer weather ahead–but it also means tax season is well underway. While only your accountant can give you true tax advice, here is some basic info that can come in handy when filing as a landlord.

Q: As an owner/landlord, what can I claim as a deduction against rental revenue?

A: This one is fun: the list is extensive. Among other things, you can claim depreciation, home office expenses, the cost of insuring your rental property, all “ordinary and necessary” property management expenses, certain repairs and improvements, mortgage interest, repair and maintenance expenses for the property, any professional real estate services you utilize, and travel expenses related to your rental business (both local and long-distance).

Q: At what rate can I claim my home office as a deduction?

A: If you have a dedicated space in your home from which you conduct rental business, you can claim part of your home expenses as a deduction against your rental revenue. And starting in 2013 (filing in 2014), Turbotax explains, there’s now a simple way to claim it. You may claim $5 per square foot of dedicated space, with a maximum of 300 square feet. But remember: the space must be dedicated to rental business only.

Q: What types of insurance can I include in my insurance expenses?

A: According to Nolo, “you can deduct the premiums you pay for almost any insurance for your rental activity.” Fire insurance, flood coverage, insurance that covers theft, and landlord liability insurance may all be deductible. (If you happen to employ anyone for your rental business, their health and worker’s comp insurance is deductible too).

Q: What are is the difference between repairs and improvements–and why does it matter?

A: Deductible rental property maintenance includes certain repairs and improvements. Repairs, Turbotax tells us, are things that put the property back into its original condition. Fixing a broken window, or even changing the locks, are repairs. Improvements, on the other hand, increase the value or longevity of the property; for instance, installing solar cells on the roof. It’s important to understand the difference between repairs and improvements because repairs and maintenance are expensed in the year in which they were incurred, while improvements are capitalized, their expenses taken through depreciation.

Q: What kind of travel expenses are deductible?

A: First let’s talk local travel. We can’t stress this enough: keep track of your mileage when driving or traveling for your rental business! Whether you’re headed to your rental property or even to the hardware store, if you’re on rental business, it’s probably deductible. If you drive, there are two ways to deduct your local travel expenses. You can either deduct your actual vehicle expenses–that is, gas, upkeep and repairs–or you can claim the standard mileage rate, which was 56.5 cents per mile in 2013. You can also deduct long-distance travel if that travel is undertaken for your rental business; but keep in mind that the IRS scrutinizes overnight travel deductions pretty carefully, so be sure to keep full records of your travel.

 

 

 

 

Market Update: Urban Growth, Larger Buildings, and Competing for those “Savvy” Renters

Happy Friday! Let’s check in with the news and see what’s been happening in rental real estate lately. This week we’ve got multifamily buildings getting bigger, Seattle’s ranking nationally as a place to invest in rental properties, a breakdown of the affordable housing challenge, Seattle’s urban growth, and a profile on the renters developers are now competing for. Enjoy!

NAHB: Average size of new multifamily housing on the rise

The average size of newly-built multifamily units rose at the end of 2013; that’s after rising during the years of the housing boom, and falling during the Recession. During the fourth quarter of last year, the average square footage in multifamily housing construction starts was 1,225 (that’s according to the Census Bureau). These numbers look a lot like those we saw between 2001 and 2003. While the average size of a new unit is still far below the averages we saw during the housing boom, these unit sizes are now sitting high above the historic low we saw in 2005. Read more.

PSBJ: Seattle’s market great for investing in rentals

A new report shows Seattle ranks within the top ten markets nationally to invest in rental properties in. Seattle was outranked by just six cities on the list, which ranked Grand Rapids, Mich. as the very best market to invest in. Also high on the list were Tampa, Nashville, and San Jose. San Jose and Seattle might have made it higher on the list, the article explains, if cap rates were just a bit higher. Meanwhile, Dayton, OH was ranked as the worst city for rental property management. Read more.

Metrotrends: Best, worst counties in America for affordable housing

Low-income Americans have struggled to find housing in recent years; now, Metrotrends has mapped the shortage of affordable housing for extremely low-income households (ELIs). The biggest gaps between need and availability were found in counties in Georgia, Florida, and Texas; the smallest gaps were found in Massachusetts and the District of Columbia. According to the article, for every 100 ELI households across the US, there are just 29 affordable units available. That number holds true for King County as well. Read more.

SeattleTimes: Growth in Seattle finally surpasses suburban growth

Census data is showing that for the first time in over 100 years, the city of Seattle is growing faster than its surrounding suburbs. Back in 1910, the article reports, Seattle’s population had nearly tripled over the past ten years; no one could predict that suburban growth would soon outpace growth in the city. But since that time, suburban King County has continued to grow–even in times when Seattle saw a downturn in population. Things changed in 2010 and 2011, when growth in the city pulled even with the suburbs; and now, the urban growth is continuing to pull ahead, putting Seattle’s rate of growth eighth-fastest for urban growth in the nation. Read more.

DJC: Apartment developers are competing for young, “savvy” professionals

Employers in Seattle, particularly the tech companies, have spent decades working hard to pull in the best people for jobs in their companies. Now, apartment developers are starting to follow suit. Because so many apartments are slated to open up over the next few years, multifamily developers are starting to look at what kind of renters they wish to attract. Increasingly, this renter may not need to own a car; they may want plenty of common spaces and a strong sense of community in the building…and they’ll definitely want good internet access. These “savvy renters,” mostly young professionals working at companies like Amazon and Microsoft, are the target audience of a lot of the new multifamily projects popping up around town. Read more.

 

Q&A: The Residential Landlord-Tenant Act

While landlord-tenant law can seem like a lot to navigate, a little knowledge of the basics goes a long way. We’ve covered a few of the regulations in past Q&As, but today we’ve put together most of what you’ll need to know about Washington’s Residential Landlord-Tenant Act.

Q: What rights does the Act define and protect?

A: Federal law makes it a crime for landlords to discriminate based on race, sex, and other factors; meanwhile, Washington’s Landlord-Tenant Act defines the minimum duties of both tenants and landlords. Should these duties not be met, there are certain actions that the Act defines as appropriate, such as eviction, reduced rent, the right to sue for damages, etc.

Q: What are the basics of the rental agreement?

A: When a landlord and tenant have agreed to the terms under which the tenant will inhabit the unit, the agreement that governs that tenancy is the lease, or rental agreement. It’s important to put the rental agreement in writing, so that both parties can read through it carefully. Any changes that are made should be initialed by both the landlord and the tenant. Periodic tenancies (month to month) and tenancies for a specific term (a one-year lease, for instance) are the two common types of rental agreement. The agreement should also include a detailed list of any furniture or other property leased with the unit, and should cover all of the details of the arrangement.

Q: Under what circumstances can I increase the rent?

A: If your tenant has signed a lease that lasts for a specified amount of time, for instance one year, you can’t raise the rent during that time period. If the lease is month-to-month, on the other hand, you can change the rent by giving 30 days’ written notice; you can’t change the rent, however, “in retaliation for the tenant’s assertion of his or her lawful rights.”

Q: What are the regulations regarding upkeep and repairs? Can a tenant withhold rent while waiting for repairs to be completed?

A: Essentially, landlords must maintain units and surrounding areas in keeping with the building codes and ordinances of the area. Common spaces and facilities must be clean, safe, and in working order. Tenants, for their part, should keep their unit clean and safe, and not deliberately damage any part of the property. Once a tenant has notified the landlord of a situation that requires attention, such as a repair, the landlord has a timetable her or she must follow when making repairs. That’s 24 hours to restore heat, water, or electricity, 72 hours to repair major fixtures, and not more than 10 days for less crucial repairs. Tenants do not have the right to withhold rent until a repair has been completed.

Q: Is my tenant required to insure their unit? 

A: Unless it is stated in your rental agreement, tenants are not required to insure the contents of their unit. It is recommended, however, that they purchase renter’s insurance.

Q: How can I learn more about landlord-tenant law?

A: If you’re interested, or you have a situation you’d like to learn more about, check out the the full Residential Landlord-Tenant Act on the state’s website. And when in doubt, don’t hesitate to ask your SRG agent; they’ve got plenty of experience with the laws.

 

Rental News Roundup: Forecasting 2014 and Beyond

CBRE: Seattle apartment market positioned to stay strong through 2017

The PCG Seattle Multi-Housing Group has released a new whitepaper analyzing the rental and housing markets in Puget Sound through 2017, and the news is good. The group reports that our area’s “unique advantages and characteristics suggest it is among the best positioned of all U.S. regions” to withstand the pressures and risks that could affect  the rental market over the next few years. That assessment is based on job growth projections, Seattle’s uniquely young and driven workforce, and other positive factors. While the 40,000 new units scheduled for completion over the next few years are a risk to the rental market, data points to the majority of new developments opening in central areas, leaving more suburban neighborhoods still underserved.

SeattleMet: Seattle needs more housing “of all types, in all neighborhoods”

The Seattle City Council hosted the Seattle Workforce Housing Forum yesterday. While the forum was focused on meeting Seattle’s affordable housing needs, the Seattle Met is reporting that the city might need to look at the bigger picture; simply put, “Seattle needs more housing of all types.” Solving Seattle’s housing issues will mean multifamily housing, small-lot homes, single-family rentals, and even micro-housing. More choice will mean more available housing, both in the affordable housing markets and across the board. Read more.

Wall Street Journal: Luxury homes, downsized

Smaller homes and units are all the rage right now, and the Wall Street Journal is reporting that the trend isn’t limited to affordable housing. In fact, more and more luxury homes are being built on scales previously unheard of in that market; the article profiles one couple who built a luxury home on Whidbey Island that was just 1,888 square feet. It sounds small for a luxury home, but when designed cleverly, the square footage can even feel “like an indulgence of space.” How long before we start to see some of these smaller homes up for lease? Read more.

BuilderOnline: Gen X still prefers to rent

A new article from BuilderOnline states that while new household formation among Gen X is one of the main drivers in the nation’s need for more housing, young people are often postponing marriage and family life, and almost all are choosing to rent their home. Between 2004 and 2012, the absolute number of renters rose by 1.7 million. While some young people do have the goal of owning a home, the data is showing that they will probably rent for some years to come. Read more.

Q&A: Easy Ways to Keep Things Running Smoothly

Welcome back to Q&A! We’re so excited about the Super Bowl it’s a little bit difficult to think of anything else…but it’s only Friday, so we’ll rein it back in and talk business. This week, we’ve got some easy ways to keep things running smoothly with your property all year round.

Q: What are the best ways to keep the tenant-landlord relationship running smoothly, and avoid any potential disputes with tenants?

A: While your SRG agent can assist you should an issue with your tenant occur, there are some easy steps you can take to keep any issues at bay way before they start. These tips are simple, easy to follow, and guarantee a much smoother experience for you and your tenant.

  1. Keep a written record. Whether you meet with your tenant, complete a repair, go by for an inspection, or even just chat about an issue over the phone, be sure to make a quick note about the exchange and file it away for safekeeping. If issues do ever occur, a written record of your experiences with the tenant will be invaluable.
  2. Don’t discriminate. This sounds like a no-brainer: of course you don’t discriminate! We still recommend that you read through the Fair Housing Act guidelines; it’s a great way to be sure you don’t accidentally cross any lines.
  3. Disclose what you are required to disclose. Certain items must be disclosed to the tenant before they move in. These include the contents of the move-in checklist, any nonrefundable fees, any fire protection and safety information, and information regarding mold. Of course, your SRG agent can help you with this; they know the disclosure laws inside and out.
  4. Handle security deposits legally. Check out our Q&A on security deposits for the guidelines you need.
  5. Inspect your property on a regular basis. While you don’t have to visit every week, it’s prudent to check on your property regularly, even with trusted tenants. Eyes on the property every once in awhile reassures you that the unit is in good shape, and it can show the tenant that you are responsive to any concerns they might have as well.
  6. Respect tenant privacy. While #5 is absolutely true, don’t forget that you must give 24-hour notice before inspecting the interior of a unit. Tenants’ privacy is protected by Landlord-Tenant law.
  7. Make repairs promptly. If a tenant notifies you of a repair that needs to be made, completing that repair quickly can go a long way towards cementing a great landlord/tenant relationship. In addition, many repairs must be completed in a timely manner as mandated by landlord-tenant law. If you come up against a repair you’d rather not attempt yourself, just check in with your SRG agent; they’ve usually got a recommendation or two on a business or contractor that can help you out.

 

Q&A: Renting your Unit Quickly

While it’s your SRG agent’s job to find you the perfect tenant in a timely manner, there are some easy steps you can take to spruce up the unit you’re renting out. These steps will increase your curb appeal and enhance the wow-factor that will make prospective tenants fall in love at first sight, meaning you and your agent can pick just the right tenant for the space.

Q: What are easy ways to draw the eye to my unit from outside?

A: Power-wash the exterior of the unit, and put in fresh, bright lightbulbs in the porch and outdoor lamps. Clean or swap out outdoor furniture for something new and vibrant. If the outside of the unit is feeling dull, consider a vibrant accent, such as a bright red door or bench (especially if you’re renting the unit out in the winter months, a pop of color can go a long way!). And add a shiny new door-knocker, or even a unique front door; these details will draw just the right kind of attention.

Q: What if my unit doesn’t have a porch or yard?

A: If your unit is located in a more urban neighborhood and gives you less outside property to work with, that doesn’t mean you can’t spruce up the curb appeal! Consider adding window planters and adding or freshly painting window shutters, in addition to the large dynamic house numbers or the unique door we mentioned above. And if the interior of the unit is gorgeous (and currently unoccupied), make sure it’s clean and well-lit so that it shines even to passersby on the street.

Q: What should I focus on inside the unit?

A: There’s a saying in the rental business that kitchens and bathrooms sell properties. If the kitchen and bathroom in your unit are a few years old, be sure to have them cleaned until they shine like new when you’re between tenants. Floors should be mopped, appliances polished, cabinets and tile scrubbed–and don’t forget the grout! As far as the rest of the unit goes, spaces should look fresh, clean, and neutral; while the pop of color outside was a good idea to draw the eye, try to steer clear of bright, distinctive interior colors that potential tenants will either love or hate.

Q: Is there anything I should do inside besides cleaning and painting?

A: There are plenty of small things you can do to make the interior of your unit shine. You may want to replace old door knobs and cabinet handles. Touch-up paint is available to keep black and white appliances looking their best; if you’ve got stainless steel appliances, make sure they’re nice and shiny with not too many fingerprints. And be sure that indoor light is at its best and brightest, replacing burnt-out or dim bulbs with bright ones that will showcase the space. If you’re between tenants, consider bringing in floor lamps that will brighten the unit even more. And finally, check out your competition; a quick search on Craigslist can show you the features of other units renting nearby, so that you can play up similar or superior features.

Dupre + Scott’s 2014 Rental Market Forecast

With January already halfway gone (have you gotten used to writing 2014 on your checks yet?), we thought we’d check in with Dupre + Scott to see how their rental market forecast for the coming year was shaping up. This data is courtesy of last month’s Apartment Advisor. Let’s see what 2014 (and the next few years after that) might have in store in five key areas affecting the market.

Employment

Over 52,000 jobs were added in the Puget Sound region in 2013; Conway Pedersen predicts that another 52,000 will be added over the next year. Much of that growth (about 37,000 jobs) will be concentrated in King County, but all counties in the region could see a 2 to 3% increase in job rates. Looking further down the line, Conway Pedersen is predicting that the region will see about 194,200 jobs added over the next five years; that’s an improvement over last year’s prediction.

Apartment Demand

So just how does employment relate to demand? 2013 saw about 7.8 jobs for every occupied apartment. Based on that rate in conjunction with current demographic trends, Dupre + Scott is predicting that about five new jobs will correspond to the demand for one unit over the next few years, resulting in about 40,000 new renters within the next five years.

Gen Y and the Boomers

Let’s talk about the renters. The influx of Gen Y adults into the rental market, the effects of which have bolstered the market over the past year, should continue steadily through 2014. Most people ages 20-34 still prefer to rent their home; and currently there are about 570,000 of these young people living in the region. That’s a lot more than during the last development boom! Then there are the retiring Boomers. Over the next five years, just about 45,000 people in our region will turn 65. These waves of retirement frees up jobs for young workers, who in turn are able to afford to live on their own–and they prefer apartments. And not all of these Gen Y kids will have grown up in the region; plenty of professionals will move to the area as well. Conway Pedersen predicts that net migration will total 100,000 people over the next five years.

Development and Supply

According to Dupre + Scott’s Apartment Development Report, at least 38,000 new units will open over the next five years, with an average of 7,600 units per year. Of course, this number is dependent upon other predictions, such as job growth forecasts, and could drop if demand is lower than expected. Some investors are worried that supply will outstrip demand, with so many units planned; Dupre + Scott points out that in the end, it all comes down to where the surge in renters is coming from, and just how deep that surge is. With so many Gen Yers forming new households currently, it looks like things should go smoothly in the years ahead.

Vacancy and Rent

According to Dupre + Scott, both market and gross vacancy should hold steady in 2014. That would keep them at about 4.0% and 4.7% respectively. Vacancy should hold steady despite the increase in units because of the job growth and preference for renting we’ve seen over the past few years. Market vacancy is expected to rise, however, over the next few years; it should reach just over 6% by 2016. That would still put it below its high rate of 7% back around 2002. So how will this affect rent? Dupre + Scott tell us that rent usually starts to decline once vacancies hit about 7%, so we’ve got some time before rents start to drop. In 2014, rents should increase 5%, followed by 3% in 2015.

Newsletter November 2013 – Winterizing Tips and Tricks

1. Clean your gutters (and don’t forget to check your downspouts!) – Once the leaves have fallen, a good cleaning of your building’s gutters is essential…

2.Wrap exposed pipes—and check for leaks inside and outside – When you hear about freezing temperatures on the news, the last thing you want is that panicked feeling when you realize you haven’t wrapped your property’s pipes for the winter. Cover exposed pipes…

3. Check your furnace, ductwork & chimney – Since furnaces often haven’t been used since last winter, give them a test run now to make sure they’re still in working order, before it gets truly cold outside…