Sperity Real Estate Ventures

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Just Closed A Restaurant? 3 Problems You May Need to Address Before You Lease Again

If you just closed your restaurant and are looking to lease it again, it is important to be aware of potential problems that you may need to address first. Indeed, in real estate, knowledge is power. You may encounter problems, such as pests, lingering odors, and safety or health issues. These problems need to be addressed sooner rather than later before you can even think about leasing your restaurant space again.

Pests

Unfortunately, it is common to encounter pests after closing a restaurant. It’s important to address these problems because they can introduce dirt and disease to your property. When addressing this problem, be sure to clean thoroughly with disinfecting chemicals. Close all openings around wiring, vents, and drain pipes to ensure that bugs cannot return and bother the new renters. In addition to bugs and rats, other vermin might seek out food from the now-closed restaurant space. You can set up snap and sticky traps for rats and mice. If bugs and vermin continue to be a problem, calling an exterminator is a good course of action.

Lingering Odors

In addition to pests, it’s not out of the ordinary to encounter lingering odors after closing a restaurant. These odors can be unpleasant and unappealing for new renters, so they must be fixed before the property can be rented out again. Grease and burnt food are typical culprits of lingering odors. Vinegar, baking soda, and odor-removing cleaning agents are a few ways you can remove these odors. There are multiple odor elimination methods to choose from, so consider your circumstances and needs when selecting which method is right for you.

Damage, Safety, or Health Issues

There can be any number of circumstances which would cause a previous restaurant space to present safety or health issues or have internal damage. Before leasing the space again, it is essential to repair any structural damage to the property. It’s also essential to verify that all carbon monoxide and smoke detectors work, and that there are at least two forms of exit from the unit. Make sure to check for mold and lead-based paint hazards presented by old buildings.

Taking the time to check your property for pests, lingering odors, damage, safety, and health issues will allow you to eliminate unpleasant surprises. Taking care of these issues will help your leasing process to happen more smoothly, and ensure happy future tenants.

Need commercial real estate advice? Contact us today and we’ll be happy to help!

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Renting on the Rise in Richmond (and everywhere else)

Have you noticed a recent spike in your monthly rent? A lot of people have, and it’s a trend not only locally but in markets across the country.

According to http://news.investors.com, over the past several years homeowning has become more difficult and former homeowners are now becoming tenants in mulitifamily dwellings. Due in large part to the economic downturn, many homeowners today can no longer afford to pay a monthly mortgage and instead are resorting to the next alternative: renting apartments.

As with most news, this is a mixed bag — it’s not good for renters, but it does make for a strong market for multifamily properties, supporting higher sales prices and spurring new development and redevelopment of multifamily properties. (see last week’s post about local development for current examples of this happening right here in Richmond)

Across the nation, multifamily properties are leading in occupancy and rent growth when compared to commercial developments, like office space and retail properties.

In a recent housing study by commercial property brokerage firm Cassidy Turley, chief economist Kevin Thorpe said:

“I’m optimistic about the multifamily sector, certainly for the next two years…We’ve entered a period of sustained rent growth.”

This recent boom in multiple tenants occupying apartment units is due to the fact that the average renter a year ago could afford the rent for a single family home when now the cost is too high.

Richmond seems to be following that rising rent trend, too. In 2007, the cost of a single bedroom apartment averaged $754/mo. and now the average cost is approximately $814/mo.

Have you seen this happening when your lease has come up for renewal? What do you think the renting forecast will look like in RVA for the rest of 2012?

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Don’t try to fool the insurance company

Understanding Landlord Insurance

By: Dona DeZube

Published: September 1, 2010

Turning your home into a rental or buying an investment property? Expect to pay up to 20% more for the right insurance policy to protect your property.

 

Rental properties require their own type of coverage–landlord insurance, which is different than the homeowners policy you buy when you live in a house yourself. Landlord insurance protects you against losses from fire, lighting, falling trees, wind and hail, water damage, and injury to your tenants and their guests.

But it doesn’t cover the renters’ household goods. So encourage tenants to buy a renters policy to cover their stuff. You can even include a clause in your lease saying they have to buy renters insurance, so everyone is clear about what’s insured and what’s not.

Landlord insurance is expensive

You’ll pay 15% to 20% more for a landlord insurance policy than you will for a homeowners policy on the same house–and even more if you offer short-term rentals. Start your policy shopping by calling the company that sold you your homeowners insurance, then check with an independent insurance agent selling commercial and business policies.

Ask how you can get discounts if you have fire prevention devices, burglar alarms, or multiple properties.

What a landlord insurance policy probably will cover:

  • Lightning, windstorm, hail, explosion, riot and civil commotion, smoke, falling objects, snow, ice, sleet, vandalism, sonic boom, sprinkler leakage, frozen pipes, water damage, burglary, volcanoes, and sinkholes.
  • Things that belong to you that stay at the property, like appliances, furniture, or lawn care equipment. Keep an inventory of what’s on site.
  • Outbuildings, like sheds or garages, although this coverage will have its own limit (probably 10% of the overall insurance policy amount).
  • Costs to defend yourself against lawsuits filed by tenants or guests, as well as the costs awarded if you lose the case. Some policies cover medical bills for injuries; some don’t.
  • Lost rental income if the property is damaged and you can’t rent it.

What a landlord insurance policy probably won’t cover:

  • The tenants’ belongings.
  • Your rental property if it’s vacant for more than 30 days. Seek an exemption in advance from your landlord insurance company as soon as you know the property is going to be vacant.
  • War and nuclear, biological, chemical, or radiological attacks.

Optional coverage you might want to buy:

  • Flood
  • Earthquake
  • Vandalism (if the policy you buy excludes it)
  • Pool and tennis court insurance
  • Liability for personal injury, wrongful eviction, wrongful entry, libel, and slander

Don’t forget liability coverage

To cover yourself in case you lose a big court case filed by an injured tenant, buy anumbrella insurance policy that gives you liability protection for $1 million to $5 million or more if you have a lot of assets to protect.

Don’t file a claim unless you absolutely have to

There’s a limit to how many claims you can file before insurance companies start charging you more or canceling your policies. Claims can quickly add up as you buy more rental properties.

One time you always want to file a claim is when someone says they’ve been injured on your property. One claim you’ll want to avoid filing: water damage for less than $10,000 because worries about mold growing in water-damaged properties will lead some insurers to immediately cancel your insurance policy.

More from HouseLogic

How to Correct Your Clue Insurance Report

Improve Your Insurance Score

Other web resources

Renters Insurance Brochure to Share with Your Tenants

Dona DeZube, HouseLogic’s News Editor, has been writing about real estate for over two decades. She lives in a suburban Baltimore 1970s rancher on a 3-acre lot shared with possums, raccoons, foxes, a herd of deer, and her blue-tick hound.

 

Visit houselogic.com for more articles like this.

Copyright 2011 NATIONAL ASSOCIATION OF REALTORS®

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Small rental property owners breathe a sigh of relief

There is always a lot of new legislation passed every year that sounds like a good idea at the time and generally goes unnoticed, and every once in a while the consequences of that legislation become horrifyingly apparent afterwards.

This past year, the legislation that was causing so much heartburn for small property owners was a new IRS requirement that anyone with rental property file a 1099 for any repairs that add up to $600+ over the course of the year. (see my post about it here, from December 2010)

Good news — the provision was repealed before it could take effect!! (here is the actual legislation that was passed to repeal the IRS provision, in case you would like to read it)

Hats off to the Realtor community for standing against this for the good of the mom-and-pop investors, who are the ones would be most affected by those proposed requirements — and for Realtor Magazine’s blog for bringing the repeal to my attention. From their description of how everything unfolded, it seems as though everyone understood that this was good to do:

When the provision was included in the small business bill, REALTORS® were among the first and firmest opponents of it, helping to ensure that Congress understood the provision was an example of over-reach that was never intended to burden mom and pop property owners. Members of Congress and President Obama got the message and, in a rare example of agreement between not only Republicans, Democrats, and independents, but also between House and Senate chambers and between the legislative and executive branches, lawmakers agreed the provision needed to come out.

Nice to know that we don’t have this provision coming up to haunt us over the next few years, isn’t it?

 

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Redevelopment plans for Carytown get nod from Museum District

The redevelopment of the old Verizon building at 10 N. Nansemond Street has been hotly debated and contested. (see: the official site for the Carytown Place; Don’t Big Box Carytown‘s website; & this post and the accompanying comment thread on Caramelized Opinions for a good summary & feel of the debate)

The Museum District Association had originally ruled to oppose the redevelopment based on the original plans, but Friday they sent out a press release announcing the reversal of that position.  The gist of the situation can be summed up from this one paragraph in the press release:

The Board voted 13-1 in November to oppose the original SUP and subsequently provided the applicant with detailed requests for further changes to make it more amenable to the neighborhood. The applicant responded by altering the SUP to remove vehicular ingress/egress on Nansemond Street as well as reduce the number of available uses of the property to 10 uses. The applicant also agreed to limit the usable floor space of any one tenant to no more than 25,000 square feet, ensuring there would be multiple tenants in the building and ruling out a single, larger “big box” tenant.

The whole press release can be read here on the MDA’s website (right now it’s at the top, but it will shift down the page as new releases are issued).

What do you think? Are you satisfied with the MDA’s ruling, or are the changes in the plan not enough for you? In that case, what changes would be enough to get your support for the development?

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Important! New IRS requirements for all landlords

PaperworkAnyone receiving rental payments from either residential or commercial properties will need to review the newly-enacted small business legislation called HR5297 with their accountant and how it expands 1099 reporting requirements.

Currently, only real estate professionals that engage in property management services have to use 1099 forms to report any service provider that they pay more than $600 in a given tax year.

The changes will be enacted over the next two years as follows (details from the NAR Issue Brief released recently — can be found online here or hosted on my site here):

2011 Rule: ALL persons who receive rental payments must provide Form 1099. This affects ALL owners (both individuals and businesses) of rental properties, both residential and commercial. Thus, “mom and pop” investors and those who invest in real estate for their personal portfolios are subject to the new reporting requirement. Only aggregate annual payments of $600 or more for services (but not goods) must be reported.
2012 Rule: All businesses, including real estate businesses, self-employed individuals and independent contractors will be required to make a 1099 report of any aggregate annual payment of $600 or more to any person from whom they acquired goods and services.

Please keep in mind that I am not an accountant, so before you act on any of this information (or panic. or dismiss.) please consult with your accounting/tax professional.  But when I saw this come across my desk, I thought it was important that you are aware of these new rules!

(*Warning! Sales pitch!*) And, by the way, here at Bandazian & Holden, we have dealt with these reporting requirements from when they were first enacted for real estate professionals in the property management field, and we are accustomed to handling the necessary paperwork for our clients.  If you don’t feel like dealing with it on your own, let me know and come on board with us. (*End of warning. Enjoy your day!*)

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News on Condos (not such a surprise)

Condos, condos, condos….  If you read this blog at all, then you know my viewpoint on the ongoing fad of converting everything to condos.  (and if you don’t, then just keep reading)

I don’t have a lot to say about it right now, but I wanted to point you to an article on MSNBC.com from a couple of weeks ago: "Scramble for affordable apartments" — and especially to this quote from the article about residential condo development:

In smaller markets such as Portland, Ore., Richmond, Va., and Omaha, Neb., demand has outpaced development.

I’ve been saying it for a while, but it’s nice to have something in the news backing me up on it.

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“Party houses” in the Fan

The Fan District Association has implemented a patrol that will be out on Friday and Saturday nights watching and listening for "out-of-control" parties.  The offending addresses will be reported to the police and then recorded on their website for public access.

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Report Those Party Houses to the Police!

         

            

Councilman
Bill Pantele working with the Richmond Police Department’s Sector 313
is introducing a new program to identify and report properties which
cause disturbance in the neighborhood. The program know as Party House
ID is being introduced to the FDA membership to allow our members to
make sure that party houses are included in the list of address
maintained by the Richmond City Police Department. We also encourage
residents to call the police each and every time that your peace and
quietude is interrupted.

            


                  The Fall Party Patrol kicks off this weekend — we have obtained a special cellular telephone number courtesy of
                    Verizon Telephone’s wireless divisions.
              Party Patrol (804) 317-2840
                Download the Party Patrol Flier to share with your neighbors
                  Click Here to Fill out the Form.
                  See a Map of the Party House Locations
              Information about the City of Richmond Noise Ordinance Section 38-1 & 2 and
                Virginia State Code Sections 5.1-317 Maintaining common nuisances; penalties.
                for filing complaints through the
                magistrates office
              The Party Patrol is currently running on Friday and Saturday nights from 9:00 pm to 3:00 AM

         

>>>

Good for them getting together to patrol and reporting the nuisances to the police!

I do, however, have an issue with the policy of publishing these "nuisance" addresses on a public access website. 
*Once a property is listed, is there a procedure for getting a property removed from the list once there is no more problem? 
*How will this list stigmatize an area?  (i.e., if I am a property owner a half a block removed, how will this public info affect my property value?)

I see this "solution" as a problem in itself.  We shall see.

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IRS Regs: Real Estate Investor?

As covered by Diane Kennedy in her article for the Realty Times, the IRS splits real estate "investors" into 3 categories:  Dealer, Developer, & Professional.

A Dealer buys and sells real estate as relatively quick transactions (also known as "flipping").  The Dealer counts in the eyes of the IRS as a self-employed individual, with the appropriate tax responsibilities, in addition to having to realize the entire gain immediately upon sale of a property.

A Developer buys and changes the use of the property.  The biggest tax implication is that the Developer has to capitalize the expenses (direct and indirect) involved in developing the property, and then apply those expenses upon the sale or use of the property.

A Professional deals with real estate the majority of his/her working time and owns 5% or more of his/her business.  As a Professional, you can "take a full deduction for any real estate losses against your other income."

Rather confusing, I think.  But that’s why I would suggest you: A) Read the original article, and B) Consult your tax accountant.

(Thanks to Urban Trekker Blog for bringing this article to my attention.)

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Condos reverting to apartments

As USA Today reported, the recent cooling of the real estate market nationwide is causing the the buyers of condos to dry up.  Coupling that with the trend of converting multi-family housing to condos (which I see is still a hot trend in the Richmond market), there is a glut of condos available.

This is having two directly observable results:

  1. Rents are rising as the supply of rental units shrinks due to conversions to condos, and the demand for rentals increases as mortgage rates rise.
  2. Some developers are noticing the first result, and converting their condo buildings back to rental units.

(see also Stronger Market for Apartment Investors  & New Hiton Hotel redevelopment of Miller & Rhoads )

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College Areas Good for Investing

While students are the not always the best tenants, there are lots of good reasons to buy investment properties in college areas.


College enrollments expected to rise by almost 1.6 million students, or
15 percent, over the next 10 years, according to the U.S. Department of
Education, and the number of graduate and professional students is
growing even faster, at almost 25 percent.

With the increase in students, there will of course be a rise in professors, administrative staff, space needed by the colleges, and supporting industries (research, retail, restaurants, etc.).  While the article at REALTOR� Magazine Online -Daily News- College Town Properties Are a Smart Buy focussed on small college-dominated towns, this is a very good sign for Richmond.  With Randolph Macon, VCU, UR, VUU, and the community colleges here, the areas around each of these schools will feel the impact.

Now is the time to jump in and start investing for the future growth, especially since the market has slowed down just a bit.

[Source: Dow Jones Business News, Jennifer Openshaw (07/04/2006), cited in the article mentioned above]

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New regs for flipping properties

The FHA has addressed a lot of "malpractice" in the practice of flipping properties.  Reportedly, some investors are profitting well at the expense of the FHA.

But the FHA found that too many property flips using its insured
mortgage program involved outright fraud — hyped appraisals, shell
games where property flippers never actually took legal title to the
house before selling it for huge profits, sometimes overnight.

Link: Realty Times – Real Estate News and Advice.

To rein in such practices, FHA proposed — and last week adopted in final form — new restrictions. Specifically, FHA will now require that:

    * Only owners of record — listed as such in the local court house real estate recordations — may sell properties that will be financed using FHA insured loans.

    * Any resale of a property may not occur 90 or fewer days from the last sale to be eligible for FHA financing.

    * For resales that occur between 91 and 180 days where the new sales price exceeds the previous sale price by 100 percent or more, FHA will require additional documentation of the property’s true value before insuring the mortgage.

    * The agency may also require additional evidence of the accuracy of appraisals whenever properties are re-sold at high price gains within 12 months.

The FHA 90-day no-flip time restrictions will be waived when the sellers of properties to be financed are:

    * HUD itself, disposing of its REO (real estate owned) acquired property portfolio.

    * Sales of properties that were acquired by the sellers through an inheritance.

    * Fannie Mae, Freddie Mac or other federally-chartered financial institutions disposing of REO.

    * Local or state housing agencies.

    * Nonprofit organizations that have previous approvals to purchase HUD REO properties at a discount.

    * Properties located in a presidentially-declared disaster area, provided FHA has issued a formal announcement of eligibility for a specific disaster area.

Real estate investors, particularly those who specialize in rehabilitations of rundown structures in central city areas, had complained to HUD about possible negative impacts on their business activities stemming from the new rules. But HUD decided that banning most 90-day or under flips, and by scrutinizing flips between 91 and 180 days of acquisition where the price markup exceeded 100 percent, FHA should be able to protect itself against the worst abuses.

Investors with questions about the new regulations can call 1-800-CALL FHA for guidance. The rules are contained in HUD Mortgagee Letter 2006-14, issued June 8.

I, for one, am glad to see that the hucksters are being shaken out of the industry.  We need to uphold the ethical standards that so many of us take for granted.

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Expansion of Henrico County Enterprise Zones

Henrico County is currently voting on the expansion of their Enterprise Zones.  These zones are areas especially designated for special programs that are designed to lure new business into the area.

In Henrico, companies that build or renovate in
Enterprise Zones are eligible to receive a variety of state and local
benefits, including – among others – free architectural drawings to
suggest exterior improvements; a seven-year tax exemption; grants
totaling up to $30,000 or 33 percent of total renovation costs
(whichever is less); employment and training assistance and various
other county advice.

Several areas within Henrico County already offer such benefits for relocating businesses and starting up new businesses.  The proposed expansions are as follows:

  • a western expansion of 131 acres along the eastern side of Staples Mill Road between Wistar Drive and Parham Road;
  • a central expansion of 563 acres along portions of Laburnum Avenue, Mechanicsville Turnpike and Nine Mile Road;
  • an
    eastern expansion of 697 acres stretching along Williamsburg Road
    (generally between Nine Mile Road and Charles City Road) and along
    Audubon Drive.

The expansions are being voted on this week!  Keep an eye out for the results.

Keep in mind that the City of Richmond
and other surrounding counties also have designated Enterprise Zones,
and so does the State of Virginia.

For the full story, see the 5/17/06 edition of the Henrico Citizen.

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New Cineplex Slated for the Boulevard?

As reported in Style Weekly (5/17/06), there are plans for the redevelopment of Richmond Steel, just a short walk from the Diamond. 

Plans for an entertainment complex … that include a 12-theater multiplex and two restaurants are those of Bow Tie Partners, a real-estate development and entertainment company with principal offices in Manhattan and Aspen, Colo.

Bow Tie Partners specializes in redevelopment of historic and architecturally significant properties, while its affiliate, Bow Tie Cinemas, owns and operates a string of luxury movie houses.

As exciting as it sounds, we won’t know until the plans get a little further along.  As Style points out, "in May 2005 Bow Tie Partners bought a 2-acre block downtown….preliminary plans included retail and residential space and a movie cinema."

[Read more…]

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Changes to S&P REIT Composite Index

Taken from a newsletter from the National Association of Realtors:

To provide a more accurate picture of the global investment landscape, Standard & Poor has changed the definations for several Global Industry Classification Standards (GICS) categories

and implemented new categories. Changes in the Real Estate Industry
Group include replacing the ‘Real Estate Industry’ with two new
Industries: ‘Real Estate Investment Trusts’ and ‘Real Estate Management
& Development.’ The new Real Estate Investment Trusts Industry will
see the creation of seven new Sub-Industries: Diversified REITs,
Industrial REITs, Mortgage REITs, Office REITs, Residential REITs,
Retail REITs and Specialized REITs. The new Real Estate Management
& Development Industry will include a Real Estate Management &
Development Sub-Industry. Standard & Poor is a leading provider of
independent credit ratings, indices, risk evaluation, investment
research and data.
   
      
Report compiled by NAR International Operations, narglobe@realtors.org.

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Stronger Market for Apartment Investors

As reported in the NREI, investors interested in multi-family housing have a strong market building.  The study cited focussed on the housing market slowdown in Southeastern cities, and how several factors are contributing to the favorable market for apartment owners.

The increase in mortgage rates is one factor that is slowing the residential purchase boom, and is consequently encouraging families to rent.

Another trend that I’ve seen in full force in the Richmond market is the effect of the numerous condo-conversions taking place simultaneously.

Another trend line that apartment investors should watch closely is
conversion activity, which has added strength to the rental market by
eliminating inventory. If the first quarter was any indication, the
conversion slowdown that began last October has carried into 2006: Reis
Inc. reports that roughly 30,000 apartment properties were converted
into condos during the fourth quarter of 2005, down from 50,000 in the
third quarter.

In effect, the slowdown of residential sales can be turned to the advantage of the wise investor.  Be on the lookout for good deals on rental units!

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