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Some of you may have noticed that it’s been well over a year since my last post. There’s a very good reason for that, besides selling lots of apartment buildings.

I’ve finally completed my book and we’re published!

It’s available on Amazon.ca (here) or directly from me at the website www.ApartmentBuildingsThatOutperform.com.

It’s been an interesting process writing a book and self-publishing – something that I’d love to discuss more. Let me know if that’s something you’re interested in. It’s both a longer and more complex process than expected, but still not that difficult.

The market in Edmonton has been a bit of a rollercoaster but there are decent buildings around and financing continues to be cheap and available. If you’ve got property already, you might be interested in the ebook we put out earlier which is a resident manager manualThanks everyone for your support in getting this thing written and published!

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11 Metrics for Your Real Estate Portfolio

Everyone loves Excel! Pivot tables, pie charts, bubble graphs, colour-coded bar-scales!

Ok, that’s just me. I do love data. One of my most read blog posts is really nothing more than a big spreadsheet of real estate values since 1962. (NB – no, I can’t update that post. The way they collect data has changed too much to have real ongoing numbers).

Here’s 12 metrics I’ve found in my own experience, from my clients and from reading interesting things like annual reports.

  1.  Debt to Value (Book and Market)
    This one isn’t complicated on the face of it. What’s the current outstanding debt of your property divided by the current market value. That gives you a bead on how much risk you’re carrying, your potential ability to refinance and potential profits if you sell. You should also compare that to your book value if you’re depreciating your properties.
  2. Operating Expense Ratio (OER)
    People love this one when they’re buying properties and I’ve never really understood why, but they do. This is how much you spend on operational costs, before debt servicing, divided by the net income of the building. I think it’s important for comparing stabilized vs. non-stabilized properties and how fast you can get a poor asset under control. Companies like Mainstreet consider a stabilized building to be one that’s been under management for 24 months.
  3. Occupancy vs Vacancy
    I use two metrics here – first there’s vacancy rate. If there’s one vacancy in a 20 unit building you have a 5% vacancy rate in that month. You need to consider vacancy rate as a snapshot metric or a forward-looking estimation. Then there’s the historical vacancy rate, which I prefer to think of as Occupancy Rate – the number of units multiplied by the amount of time they were rented, divided by the number of units divided by the total amount of time. If you’re actively renovating to add value or just doing repairs to maintain cash-flow you may also want to be conscious of how much time you loose to renos – a rental-time-lost or down-time metric.
  4. Rent-Days Lost to Renovations
    Speaking of lost-rent metrics, here’s two ideas for you. If you’re a renovator and you have a lot of units or properties (for the single-family folks out there) – renovations take time and time is money. How long does it take you to do a reno? If you’re doing a similar reno over and over again, such as new flooring and countertops in every suite, how fast can your crew turn around a suite to be rent ready? I’d make the distinction that while it’s under construction it’s not available for rent, and then when you’re done renos and someone can move in it’s now counted as vacant. Every unit comes with 365 rent-days – it’s up to you to make sure as many as possible are fully occupied and paid.
  5. Rent-Days Lost to Turnover
    The turnover metric is hugely important in multifamily in a slow market. Assuming you can get a suite rent-ready as soon as your old tenant is out, how long does it take you to get it done? I’d say that same-weekend turnover is the goal and that same-day turnover is possible. You need to be in the unit before the tenant moves out to do little touchups and have a proactive onsite person to help coordinate moving, carpet cleaning and touchups. If rent is $1,000/month every day costs you $32.88. Get it moving!
  6. Loss to Lease
    This is a metric I believe I first saw on a Boardwalk annual report. Simply put it’s the difference between the rent you collected during the year from tenants on a fixed term lease (e.g. $1,000/month) compared to the full market lease. Imagine a year where full market was 950, 975, 975, 975, 995, 1010, 1050, 1050, 1050, 1050, 1050, 1050. Your leased unit income was $12,000, whereas the market is  $12,180. Your loss to lease is 1.47%. If you were worried you’d missed out on a rising market, I’d take that number as a reason to chill out.
  7. Incentives as a proportion of rent
    Self-explanatory. If you’re giving a discount for the first two months of a lease, or a free TV, or something else like free parking or laundry tokens – put a value on it and keep track of it!
  8. Length of Stay
    My favorite metric – how long have your tenants lived in your property. Better yet, how can you change this? Don Campbell suggested last night that when Do you see patterns by area, asset type or suite mix? How much better is a full single family house compared to a basement suite? With garage or without? Good data lets you decide what you want to buy moving forwards or what assets are underperforming and should be sold.
  9. Maintenance proportion of expenses
    Like the operating expense ratio item above, you should be keeping track of how much of your expenses are going to capital costs or repairs and maintenance. Usually it’s a metric I see that’s way too low and the building is slowly running into the ground. We’ll come back to properly planned spending.
  10. Utility costs per square foot
    I’m not convinced that this will really work across buildings, but it’s worth measuring utility costs and breaking it out to be a per square foot cost. It’ll help compare apples to apples, and if you’re looking at higher costs in some buildings you should also consider measuring adults or teenagers per unit and maybe square foot per person.
  11. Deferred Capital Costs
    I own a number of condos and I’m the treasurer of the board of one. I have a healthy respect for the idea of a reserve fund study, also known as a depreciation report. Simply put, look at the big expenses and estimate what they cost and their lifespan and work backwards to know what you need to save. You can put the numbers you get into context by comparing it to annual revenue or market value.For example, a shingled roof on a house may cost you $5,000 and last 20 years. That means that the day after the roof is installed you should to save $250/year for your next new roof.A little extreme? Maybe, but I’ve also seen a huge number of owners, both residential and commercial get absolutely screwed when these costs catch up to them. Just ask anyone who has been on the receiving end of a special assessment.

What about you? Any good measurements you’ve come across? Am I out to lunch? I didn’t even get into tactical management metrics like calls/ad, applications/vacancy or applications/lease signed.

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My 2014 Review

I have to say that 2014 was a year of massive changes. We’re going into 5 years in the business of helping people buy and sell and we’re finally properly conscious of what we know and don’t know. I’ve never been more excited for the future. Here’s the highlights:

– Our move to do more business on the commercial (multi-family) side continues. About 65% of our income was from the commercial side, while I think we still do a great job on residential properties. I love working with friends and family – right now I’m pretty sure we’ll always stay involved in that side of the business. It’s so grounded and I like knowing how things are in the market first hand.

– We made the RE/MAX Commercial Top 100 in March!
The great letter dad and I got. Top commercial #REMAX in western Canada.

– We did make one big change to the residential side of the business in the person of Jennifer Elander-Bianchini. Jen is a brilliant Realtor, always cheerful, massively hard working and loves spending time with people. She’s helping our buyer clients find new homes and learning lots as we go.

– We gained Jen, but after 30+ years in the business Brent decided to retire from the active side of real estate. He’s still involved managing his own properties, helping out when our clients need advice – he’s still available for consulting and speaking engagements! If you’re buying your first apartment building he just might join you for a walkthrough and see if he can impart some wisdom.

– The band that Mike Landry and I have played in for nearly 10 years recorded our second album and played some cool gigs before letting things go to see what new projects God has in store for us.

Look! I found a #rainstick just for @trevorlawless!

Ready to play for a Columbian choirs rehearsal.

– I managed more sailing this year than last, including some time in my Laser.
Out #sailing with boy #1. Great day. #startthemyoung #kidsofinstagram

– I’ve also brought some terrific experience into the office in the person of Leigh Davies. She’s the former controller and general manager of Davies Management and my office has never been cleaner or more organized.

– RE/MAX Commercial World Symposium in Denver, plus visiting RE/MAX World Headquarters!
Finally checking out #REMAX headquarters. #yegre

I’m writing a book! It’s about strategic apartment building ownership and it’ll hopefully be out in early 2015. Drop me an email or comment if you’d like to be on the list for updates.

– The boys are just brilliant and they’re expecting a new sibling around Easter. Megan and I are stoked.
Awesome helpers on my trip to Rona tonight.

– I also finally got my MCNE (Master Certified Negotiation Expert) done which included a trip to Vancouver and Victoria!
Hanging in Sydney harbour before our ferry. #thewifehatesselfies

This was a very challenging year but when I look back at what we accomplished I think we weathered the storm in style. Here’s to a great 2015.

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Moshe is brilliant and there’s some great ideas here. Apartment building living doesn’t need to be for the poor, be boring, or be mediocre.

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The Double Edged Sword of New Rental Construction

There are many reasons I love new dedicated rental buildings. There’s also a lot of reasons I love working out of a RE/MAX brokerage. I have many great commercial clients and a lot of wonderful friends who are simple residential clients. There’s also a world that crosses the divide; investors who want to move up from a couple dozen houses to an apartment building.

This summer however, the two worlds connected in a new way for me. I had three clients move out of new dedicated residential rental construction and buy homes. In one case they were a young professional couple who bought a $250k townhouse, one bought a $450k new build detached home and one bought a $350k existing home. The common reason they all gave for moving out? The poor quality of the building and the management. In one case there was an 8 foot long settlement crack in the living room.

The double edged sword is this: It’s great to build nice looking buildings and push for the top end of the rent range, but the tenants you attract are high maintenance, have high expectations and the same high incomes that fuel your top of the market rents also make them great home buyer candidates. They’re renting by choice and it doesn’t take much to change their minds and move them into an ownership mindset.

Come to think of it, I might start targeting some residential buyer focused advertising at those buildings to see if I can’t convert them into good buyer leads for my team…..

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Ok, the title is a shameless plug for a great band. The Apartment Vacancy and Rental Cost Survey put out by the Alberta government’s Municipal Affairs department is only slightly less awesome. What is it? Here’s a quote from their introduction.

Since 1973, (with the exception of 2004), the Province of Alberta has conducted an annual Apartment Vacancy and Rental Cost Survey (AVS) of multi-family dwellings in Alberta’s rural communities. The survey identifies building type and age, unit type, number of units, rental rates, and the number of vacancies of private market rental units in rural communities. The eligibility criteria used in selecting communities for the survey are those with:

  • A population between 1,000 and 9,999;
  • Thirty or more rental units; and
  • The community is not included in the Canada Mortgage and Housing Corporation’s (CMHC) bi-annual Rental Market Survey.

Each year the number of communities surveyed by the AVS may differ due to changes in population or the number of rental units in the community. In 2013, the Town of Millet was added to the survey as they qualified with a population over 1,000 people and over 30 eligible rental units.

That’s great news if you’re like me and have listings or buyers working in Swan Hills, Tofield, Vegreville, Edson, St. Paul and Wainwright. CMHC’s numbers are helpful, but they don’t cover the small towns. In a small town the name of the game is risk reduction and having real data is key to ensuring you’re making logical, informed and impartial decisions.

Interesting Charts!

There’s some pretty wild extremes in small towns, and that can mean big things for your income or pure disaster! And here’s just one data series from the report (picked Athabasca because it’s the first alphabetically) together with a sparklines chart.

Here’s links to a handful of interesting extracts directly from the Government’s website. I have the full report so if you’re looking for info, give me a call.

I’m finding this $15 book of numbers hugely useful and I’m sure if you have or are considering buying properties in rural Alberta it’ll help you too.

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AshLike most landlords, I have a love/hate relationship with smokers. They’re usually great tenants, pay on time and tend not to move as often as their fresh-air cousins. The hate (really, more of a dislike) comes when they move and it’s time to re-rent or sell. Flooring, paint, washing, ozone, and lots of fresh air. I’ve even had clients scrub walls with the commercial cleaner TSP (which I used to use when I worked in biology labs) to try and remove enough tar so that primer could adhere to the wall.

In the September 2013 issue of Canadian Apartment Magazine Chris Seepe does a quick summary of a couple issues facing the owner or manager with smokers in their buildings or who wants to go smoke-free. One part stood out to Edmonton’s market, currently seeing huge number of multi-family (condo) projects on the go, with the first new dedicated rental buildings in decades appearing on the outskirts of town. A survey undertaken by the Ontario Tobacco-Free Network showed that (in Ontario) 2 out of 3 people would choose to live in a smoke free building if the choice was available.

It’s tough to monitize a statistic like ‘2 out of 3 would choose’, so let’s consider the costs of turnover and the costs of lower rent. In the article Mr. Seepe suggests that it costs $650 every time you’ve got to clean up a one bedroom smoker unit – $450 on paint, $100 on carpet cleaning and at least $100 to clean all other surfaces, including windows, mirrors, balcony doors, closet doors, kitchen cabinets and appliances. If that tenant goes after a year, you’ve effectively dropped your rent by $54.17 per month.

I think it’ll be $1500 on paint and carpet, plus cleaning.

Speaking from three generations of apartment building ownership, if you were going to re-rent without doing a lot of work, you’d be looking at a $25-$100/month discount. That’s also assuming you could re-rent it to a light smoker. However, we’re in a very anti-smoking society and the majority of light smokers I know are quick to say they’d like to quit – making them unlikely candidates to move into a heavy-smoker unit. You should just keep the old tenant and leave things along. Smoking isn’t even close to being one of my 10 terrifying tenant issues.

New buildings, those recently renovated and buildings where you’re looking to turn around the tenant profile will see an even more profound discount or premium. Just like strong cooking smells, second hand smoke in the halls will scare off many students or people new to town who are looking to rent while they get established. As a REALTOR, I’ve seen many buyers choose significantly more expensive properties because they can’t find anything in their price range that isn’t coated in smoke. They’ll move from wanting cheap detached to brand new condos just to get away from the smoke.

I think there’s a niche for C-class buildings that will stay that way and be accepting of smoking. They won’t be a star in the current market but when things slow down they’ll be steady.

Are there any owners or brokers out there with experiences going pro-smoking to anti-smoking? Anyone got numbers of their own?

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