Property Management 2.0

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Property Management 2.0 Blog has moved!  Click here for our updated - and ultra cool - new Wordpress blog!  Happy manageing! -Trevor

How to screen and verify tenants for your rental property

The proper and thorough screening of prospective residents for your investment property is one of the most critical tasks that you as a property owner.  By doing the leg work (and phone work) up front, you can certainly limit yourself from unneeded hassles and/or loss of rent income.

Here is a quick check list of all the screening activities that our property management team perform when we receive a rental application:

• Verification of position, salary, tenure and conduct status at the place of employment
• Two month’s original pay stubs or bank statements showing deposits
• Phone conversations with (2) personal references
• Verification of rent payments and good conduct as witnessed by previous TWO landlords
• Credit check
• State-wide unlawful detainer search
• Criminal background check

Do you perform any additional tenant screening measures?  What works best for your company or investment property in your area?   -TH

New Lease on Life for Apartments in West Hollywood

Los Angeles, Ca – First Light Property Management Inc has been selected by Combined Properties, Incorporated as the property management company for three multi-family properties in West Hollywood, one of which is a 17 unit building.  The properties are slated for future development.

Combined Properties focuses on retail real estate development and so it chose to partner with First Light Property Management who has strong experience in multi-family property management and leasing, with an online toolkit approach designed to improve customer service, accounting transparency, and apartment leasing.

Brian Miller, of Combined Properties, stated: “After considering several property management companies, we chose First Light because they were the most flexible and willing to meet our particular needs and work with our development situation.  They were also the most responsive and informative to many of our questions.  He added: “As a retail developer, multi-family is outside  our core business at this time.   Partnering with First Light enables us to effectively and efficiently manage the multi-family portion of the asset and maximize our returns allowing Combined to concentrate on the overall development strategy and project.”

Commenting on the agreement, Trevor Henson of First Light Property Management said: “Our multi-faceted approach is a good fit with the needs of Combined Properties. We provide superior customer service to our residents; protect the interest of our clients; and maintain a high level of accounting and maintenance transparency via our extensive online system.

With a large number of apartments becoming available in West Hollywood market at the same time, First Light will be implementing an aggressive online marketing campaign coupled with 7-days a week showings and extended leasing hours.  First Light’s rental units are advertised using a variety of means – from traditional print media to walk through videos on their YouTube channel – they offer a range of different ways for applicants to contact the leasing office.

This strategic partnership will allow both companies to contribute positively to the property development activity in the West Hollywood area by offering affordable apartments units without sacrificing quality or service.   

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NOTES FOR EDITORS

Combined Properties, Incorporated is a full-service real estate firm headquartered in Washington, DC with an office in Beverly Hills, CA.   Founded in 1984, Combined Properties has consistently been ranked as one of the top private owners of retail centers in the Washington metropolitan area.  With a portfolio comprised of 5 million square feet and a $400 million development pipeline, the firm is now branching out from its concentration in retail real estate by applying its multidisciplinary expertise in the areas of development, asset management, leasing, and finance, to developing innovative mixed-use properties.

For more information visit www.combined.biz

First Light Property Management, Inc is a leading Los Angeles full service property management company, providing professional, high-quality, affordable management services for a wide variety of residential and commercial property rentals. Our services include property brand management, strategic property marketing and real estate investment guidance and opportunities.  We pay close attention to the needs of property owners/developers and tenants alike, resulting in superior service and quality management.

For more information visit www.firstlightpropertymanagement.com

 

Why is renting is better than buying? Because of customer service!

There are many reasons to rent an apartment in stead of buying a home these days.  One reason that is frequently overlooked is the customer service you receive as a renter from a property management company.  Instead of having to find the right handy man, plumber, electrician, etc - one call or email to your property manager and the issue is on schedule for repair.  As a renter, you do not have to worry about who is going to fix what and when and for how much - your property management has got you covered!

Take look at an email our firm just recieved from a departing resident - it is a great example of what I think every resident should be able to experience in their communities.  Thank you, Susan, for sharing your thoughts with us!

To Whom It May Concern:

Julie was my apartment manager when I lived at 4111 Illinois Street. I was most pleased to have Julie as my manager. She restored my faith in apartment managers. My previous experience on Arizona Street with the landlady there was so bad I don't even want to go into it.

There were several maintenance issues that came up while I lived there. These were all handled. I was very happy that everything was taken care of by Julie and her team. Julie even came over with her own plunger one time when I was having a problem with my toilet (and my plunger wasn't doing the job). She was very friendly and promoted a friendly atmosphere in the building. I thought that was really nice. We had many good conversations. It was always nice to know that she appreciated me living there.

When it came time to move out, she was very helpful as were members of her team. She was reassuring about the return of my security deposit. I was happy with the way things turned out. She set such a good example that I also went out of my way to be friendly and help others in the building. 

Sincerely,

Susan

(DISCLOSURE:  I work for First Light Property Management)

-Trevor

Is your property manager prepared? Experts say housing recovery is still years away...

The latest news from the real estate industry is rather grim:  another few more years of this lovely economy we that we live, work, play and sleep in.  As an investor, are your assets ready for another few years of slow growth?  Are your investment properties prepared for another year of less-than-optimal rents? 

If you are having doubts about your property management company's ability to handle a tough rental market, now is the time look for one that can.  Property management is not just about the collection of rents - it is the understanding of the market and how guide your investment accordingly to achieve the best ROI possible.

-Trevor

Reposted from msnbc.com

Article by Linda Stern

WASHINGTON — The housing market will remain depressed, with record high foreclosure levels, rising mortgage rates and a glut of distressed properties dampening the market for years to come, industry experts predicted on Tuesday.

"We don't see a full market recovery until 2014," said Rick Sharga of RealtyTrac, a foreclosure marketplace and tracking service. He said that he expected more than 3 million homeowners to receive foreclosure notices in 2010, with more than 1 million homes being seized by banks before the end of the year.

Both of those numbers are records and expected to go even higher, as $300 billion in adjustable rate loans reset and foreclosures that had been held up by the robo-signing scandal work through the process. That should make the first quarter of 2011 even uglier than the fourth quarter of 2010, he said.

There have been allegations banks used so-called robo-signers to sign hundreds of foreclosure documents a day without proper legal review.

Mortgage rates will start to rise in 2011, further dampening demand and limiting affordability, said Pete Flint, chief executive of Trulia.com, a real estate search and research website. "Nationally, prices will decline between 5 percent and 7 percent, with most of the decline occurring in the first half of next year," he said.

Interest rates on 30-year fixed rate loans will creep up to 5 percent, and that alone will add $120 per month to the typical mortgage payment on a $400,000 loan, Flint said in a joint news conference.

The two firms released a survey showing a marked deterioration in consumers' views of the housing market, too. Almost half — 48 percent — said they'd consider walking away from their homes and their mortgages if they were underwater on their loans. That's up almost 20 percent from when the same question was asked in May. "If that continues it would be an epidemic of strategic defaults," said Flint.

Roughly 1 in 5 consumers said they expect it to be 2015 before there is a recovery in housing, according to the survey, conducted in November by Harris Interactive. Most respondents said they think recovery will come in 2012 or 2013. Would-be buyers suggested they wouldn't really get serious about purchasing a home for another two years.

Sharga sees a big glut in distressed properties hitting the market. There are about 5 million loans that are at least 60 days overdue, he said. In the next 12 to 15 months, another $300 billion in adjustable rate loans will reset, and "they will default at pretty high levels."

"Even with today's low interest rates, you're looking at an average of $1,000 or more in mortgage payments on loans that are overvalued by about 30 percent. That is where you will see a high level of walkaways," Sharga predicted.

Not all markets will share equally in the troubles. Flint said he expects to see improvements in several markets, including Raleigh-Durham, North Carolina; Austin, Texas; Oklahoma City, Oklahoma; Salt Lake City, Utah and Omaha, Nebraska.

Homebuyers who are willing to take risks and buy distressed properties are likely to see discounts of around 30 percent from prices on comparable homes that are not in distress.

Original article: http://www.msnbc.msn.com/id/40553009/ns/business-us_business/

Multifamily real estate in Los Angeles: plenty more opportunity for distress buys.

For those of us looking to place money in the money in the multifamily market, rest assured that we have not missed the boat.  In GlobeSt.com yesterday, there is a nice, QUICK, break down of the state of the apartment market in Los Angeles.

 “LOS ANGELES-The multifamily real estate industry is in the fourth or fifth inning of the distress cycle. That was the general consensus among experts that participated in the session, “Distress Chess Match: Whose Move?” part of yesterday’s RealShare Apartments 2010 conference in Downtown L.A.”

“There hasn’t been much movement in terms of distress transactions taking place. One reason is the difficulty in finding financing. Gary Tenzer, senior director, principal and co-founder at George Smith Partners, shared that Fannie Mae and Freddie Mac won’t touch such deals, and banks rarely lend to distressed situations. D. Scott Lee, senior managing director of LTVentures, added that mezzanine debt isn’t penciling out in most cases, either. Private, bridge or hard money lenders are willing to lend to distressed situations, but as Stephan Kachani, vice president of Lone Oak Fund, pointed out, they tend to prefer class C properties in tier-A locations.” By Sule Aygoren Carranza  Full Article

And when you do close the perfect investment property deal, make sure you have the right property manager in place to protect, care for and improve it.

-Trevor Henson

What is property management?

Property management is an upscale, highly sophisticated babysitting industry.  And property managers are the babysitters your always wished you could find for your child.  We babysit, take care of, tutor and nurture your child (aka your investment property - whatever that may be).  As property managers we will love it for you; educate it for you; make sure nothing bad is happening to it; we inform you when it is misbehaving; we reward it when it is doing well; and give you detailed reports and suggestions on its progress.  When a property management company is “watching” your investment, you can be sure that can go about your daily tasks and travels and know that your "baby" is in good hands.

A professional property management company will do the following for you and your investment:

• Collect rents on line
• Fix anything that breaks
• Provide EXCELLENT customer service to your tenants, so that they want to live there for years and years.
• Lease the apartment or home when it becomes vacant
• Act as your agent for evictions (yes, we go to court so that you do not have to).
• Provide emergency services 24 hours a day.
• Perform all booking keeping activities (pay bills, reconcil bank accounts, etc).
• Compile all resident, vendor, repair, turnover and market information as it applies directly to your investment.

Property managers take care of your building so that you - the owner, investor or partner- do not have to.  And we love every minute of it.

-Trevor

 

Property management and dirty laundry: How to increase NOI with outsourced laundry machines

An apartment building of 10+ units will generally benefit from having an on site laundry facility. Residents enjoy the convenience of doing laundry in their own buildings and owners enjoy the extra revenue.  The downside, of course, is the repair cost, which can add up once the machines fall out of warranty.  Service technicians for a washer or dryer can be in excess of $200+ per incident, never mind the lost revenue if a machine is out-of-order and waiting for new parts.

From a property management perspective, I recommend releaving yourself of such headaches (and expenses) by hiring a professional company who specializes in multifamily laundry systems.  Our property management firm here in Los Angeles uses use a company called Web.

Advantages of out sourcing your laundry service:

• When a contract is signed, the company providing the service will replace the old equipment with brand new washers and dryers
• If a machine breaks, the company will fix or replace at no cost to landlord
• Money collection is the sole responsibility of the service provider (no more running from property to property to collect bags of quarters)

So, what does this service cost?  The laundry man makes his profits from the gross collected amounts generated from resident use of the machines.  Typically, they will charge 40% to 50% of all monies collected and send the landlord a monthly check for the remaining amount.  For most property owners, this a fantastic deal when you take into consideration the property maintenance expense saved on repairs.  And as an added bonus, you don’t have to collect all those quarters yourself.

Property Management Accounting: One or multiple real estate trust accounts?

  A question that we – as a property management firm – are constantly asked by prospective new clients is “How do you reconcile the trust account against all the checks and bills that come in and out of your office each month? How can we be sure that our money is being properly accounted for?”

 To us, the answer seems very simple:  each new client is set up with two new trust accounts once they sign a property management agreement:  An Operating and a Reserve account.  Security deposit monies that are collected from residents at move in are deposited into the Reserve account and not touched until that resident moves out again.  Monies that are collected as rent are deposited into the Operating Account and used to pay bills, vendors, owner distributions, etc.  At the end of each month, each account is examined and reconciled.  True, this adds a bit more work for our book keepers, but the reconciliations at the end of each month end up being very precise. 

In California it is legal keep every client’s rental and deposit monies in one single trust account – but to me that seems like an accounting nightmare.  One account would save on bank fees and back end set up time, but that seem like a small price for being able to show our clients a bank statement at the end of the month with their specific account and accounting info.  If we employed the single-trust fund method, our clients would never – in my understanding - be able to see such an account statement due to the fact that  funds from 100 other properties would also be represented in this account.

I would like to know other landlords thoughts on this - Are we going to too much trouble with this approach?  Does one massive real estate trust account work?

-Trevor

Is renting an apartment a better option than buying a house?

This article that I found on The Real Estate Channel's website seemingly creates a set of mixed emotions for the multifamily and residential rental industry.  While we, as property managers and investment property owners want rental demand to increase in our apartment buildings, we do not necessarily want this increase to be at the expense of our single family home investments - or do we?  If our portfolios are weighted more towards multifamily, then perhaps this article is good news... What are you thoughts?  Are we seeing the first signs of a multifamily dominated real estate market?

-Trevor Henson

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Will Growing Rental Trends Undermine U.S. Home Sales?

By Keith Jurow

There is a far-reaching change occurring now which threatens housing markets around the country. A survey conducted by Harris Interactive for the National Apartment Association in May 2010 found that 76% of those surveyed now believe that renting is a better option than buying in the current real estate market, up from 71% in 2008.  Especially sobering was the fact that 78% of those surveyed were homeowners.

David Neithercut, CEO of Equity Residential, the nation's largest multi-family landlord, believes that there is a "psychology change" in the mind of consumers.  In a June address to an industry conference, he declared that there is "a change in one's thought process about the benefits or wisdom of owning a single-family home."

Given this introduction, let's take an in-depth look at whether there is a movement away from the idea of homeownership as a worthwhile goal and toward the benefit of renting.

End of the Housing Bubble Led to a Surge in Houses Available to Rent

As early as the summer of 2005, the slowdown in speculative buying in the hottest metros caused a flood of investor-owned homes to hit the rental market.  In August 2005, an article in the Wall Street Journal entitled "Speculators Push Rents Down" pointed out that the supply of rental homes in the Phoenix area almost doubled from a year earlier.  Average rents for these houses dropped by nearly 10%.  Similar situations were found in markets as diverse as Fairfield County in Connecticut, Kansas City, Las Vegas, San Diego and Palm Coast, Florida.

Even more ominous was the fact that 1.34 million single-family home rentals stood vacant.  This had risen from only 900,000 in 2003 according to Harvard University's Joint Center for Housing Studies.  Many of these homes became rentals because the investor was unable to flip the property.  By the end of 2006, the number of vacant homes for sale had skyrocketed to 2.1 million according to the Census Bureau.    

As I pointed out in a previous REAL ESTATE CHANNEL article, the glut of rental homes in bubble markets such as Phoenix had caused rents to plunge to half the cost of owning that same home by the beginning of 2008.  The press began to notice that the soaring number of homes and condos for rent was providing an attractive alternative to buying. 

A June 2008 Associated Press article posted in the Los Angeles Times emphasized that these rental properties were attracting "displaced homeowners" who preferred them to an apartment.  As foreclosures soared, these displaced homeowners continued to opt for rental homes.  A January 2010 article about the Denver rental market posted by Inside Real Estate News pointed out that "if a family loses their home in a foreclosure, instead of leasing an apartment in a building they will rent another home."  What happens after a single-family foreclosure is that "the family moves into a rental house down the street."  The author noted the irony in the fact that the home they are moving into may also be a foreclosure that had been bought by an investor.

2010 - Homes for Rent Continue to Increase and Rents Continue to Weaken

With the collapse in Florida home prices over the past three years, you would think that house rents might have begun to firm.  No way.  An article published in January 2010 in the online Herald Tribune painted a dismal picture of the rental market.  One landlord who owns more than 150 single-family homes lamented that "There isn't the demand that there was a few years ago because we've lost our construction workers ... We certainly have a lot of empty units."

Another owner of ten rental homes stated that she and other landlords had had to reduce rents by "at least a third."  A house that commanded a rent of $900 a few years ago gets only $500 now.  There are simply not enough potential renters who can afford even these slashed rents.  Because many of these smaller professional landlords are also faced with rising vacancies, a growing number of them are seeing their properties fall into foreclosure.

A month later, an article appeared on iMarketNews.com which reviewed the house rental market around the country.  The picture was nearly as grim.  In Brooklyn, New York, whose market has held up better than most, rents have slipped by roughly 20% since early 2009.  A similar percentage drop was seen in the California communities of Venice and Santa Monica. 

The owner of a property management firm in St. George, Utah stated that home rental vacancies were the highest he had seen in the last thirty years.  Another property management owner in Portland, Oregon bemoaned the fact that frustrated sellers have been throwing their properties onto the rental market, adding to the glut.  The same thing was happening in the California Inland Empire city of Temecula.  One close observer of that market noted that the asking rent for single-family homes had slipped below apartment rents which was almost unthinkable only a year or two earlier.

More recently, the May 2010 Las Vegas Rental Home Market Report stated that median house rents were down nearly 10% from a year earlier even though leasing volume was up by 20%.

Those Who Can Afford to Buy Are Extremely Reluctant to Do So

While surveys and statistics can be very revealing about the housing market, you cannot really get a good sense of the changing mindset of Americans from them.  To do that, you need to spend time reading comments written on some of the housing blogs and in response to online articles.

Let's start with a blog called Metropolis which covers the Philadelphia region.  A mid-July posting by the roughly 30 year old editor discussed the question faced by her and her husband since they moved from Boston.  Clearly, they had the combined income to afford to purchase in the pricy Center City.

Yet they decided to rent even though rents were high.  As she explained the decision, "Part of the appeal of being young, urban and childless is the freedom to travel frequently, relocate on a whim, and throw all of our disposable income at shiny new consumables."  She went on to ask, "Do I want the responsibility of owning a home?  Not in the slightest."  Though she admitted that she and her husband might purchase a property, she ended the article by declaring that "Until then, I'll be proudly writing my monthly rent checks."

One of the commenters on the article advised the author that there were plenty of affordable nice rentals with great amenities outside of Center City.  Another commenter with a new baby felt the pressure from everyone to buy a property in the suburbs.  But that was not what they wanted.  As she put it: "We're moving this fall from one rental to another, and I like the feeling of having something new.  With a pool I don't pay for, a gym that's open 24 hours a day, and emergency plumbers on staff at 2 a.m., I have enough responsibility in my life that I don't need a home."  She closed by declaring that "my rent payment gets me ... the amenities I've grown accustomed to ... and the peace of mind that someone else is responsible for maintenance."

Another blog raised the question of whether it made more sense to rent or buy.  A Chicago commenter said unequivocally that "I think we might be renters forever.  My husband and I love sitting ... in the park reading the Sunday New York Times while our landlord is stuck fixing the garbage disposal.  Time is priceless.  And we are nowhere nearly as freaked out about finances as our friends are."

Another commenter explained unequivocally that "Renting is a service I gladly pay for. We spend about $40 a day for use of a nice three-bedroom townhouse on a quiet street, with a private yard, a larger park for kids in the complex ... I like having money set aside for a surprise like a weekend trip to Manhattan or a night at the Opera instead of a blown water heater or a leaky roof."

Finally, an article on the online Wall Street Journal in early August discussed the glut of homes for sale.  One commenter proudly boasted that "I sold my home four years ago in south Orange County [CA] and have been biding my time as the market props run their course."

Another commenter declared that "[I] have close to 200k household income, 100k down payment waiting in the bank, but any home I'm interested in is close to a million or more.  Sure, I could afford a condo or home in less desirable areas, but I prefer to live near my socio-economic peers.  I don't understand how families can afford to buy 700-800k homes on 70k household incomes.  Until things make sense, I'm not buying.  I'm happy to continue renting in a nice neighborhood close to work, and use the left over cash to feed my nest egg."

The Caretaker Alternative

For those of you who may be reluctant to buy but are hesitant to sign a lease of one year or longer, an alternative known as a caretaker could be worth looking into.  To deal with the growing number of vacant, habitable homes which the owner would eventually like to sell, an industry known as home tending has blossomed in the last fifteen years.

The concept is a simple one.  Vacant homes often attract vandals, thieves, drug dealers and even squatters.  Home tending companies provide clients such as individual owners, real estate agents, builders with vacant homes built on spec, remodelers fixing up a property to flip, and occasionally banks with a carefully screened live-in caretaker.

The home tender firm does not charge the client anything.  How do they make money?  Caretakers gladly pay a reasonable fee to live in a very nice home with their own furniture.  According to one home tending company owner in San Antonio, the caretaker may pay about $750 a month to occupy and care for a house worth $400,000.

The monthly payment is not rent according to a company owner in the Phoenix area.  As she explains it, the caretaker is a subcontractor of her firm who understands that there is no fixed time commitment for staying in the house.

The caretaker is responsible for keeping the house clean and maintained and the yard mowed and manicured so it can be shown to a prospective buyer at a moment's notice.  The Phoenix firm does a background check and requires caretakers to complete their training program.  The caretaker must also carry a minimum of $300,000 in liability insurance and $25,000 personal property insurance. 

When the house is sold, the caretaker is usually given 10-14 days to vacate.  One of the largest firms, located in Utah, will sometimes shift a caretaker to another property when the one they have been occupying is sold.

Who are these caretakers?  Many of them are professionals who are relocating and either need a temporary place to reside or want to learn more about an area before deciding where to live more permanently.  They also include former homeowners who have lost their property to foreclosure and need a place to live until they can get back on their feet.  Some are divorced men or women in transition and looking to start a new phase in their lives.  Others are renters trying to save enough money for a down payment on a house they hope to buy in the future.

Why Renting Will Be a Popular Alternative to Buying for Years

Some housing analysts argue that the American dream of home ownership is still alive and well and will reassert itself when the economy and housing markets recover.  This is little more than wishful thinking.

The housing bubble of 2004-2006 was the climax of a powerful belief which had formed over decades that residential property prices always go up.  The collapse in home prices around the country since late 2006 has shattered this assumption.  Zillow's latest Homeowner Confidence Survey for this year's second quarter reported that one-third of all homeowners do not believe that home prices have reached a bottom.

The change in attitude toward owning a home cited in the beginning of this article has now reached the blogosphere.  A Google search I ran on renting vs. buying found a website which posted links to 48 blogs that touted renting as the preferable option.  How many of them were there during the peak bubble years?

The attraction of renting now is boosted by the growing vacancy rate for both houses and apartments.  The following chart posted recently by the Calculated Risk blog shows the long-term upward trend. 


 
With nationwide vacancy rates now well over 10%, it is extremely difficult for a landlord to even consider raising rents.  Since roughly 25% of all home sales are currently going to investors paying cash, large numbers of homes will continue to be thrown onto the rental market.

The one major market where there is apparently a shortage of nice 3-4 bedroom rental homes is Phoenix according to the Cromford Report.  If this claim is accurate, it is due to thousands of former homeowners who have lost their house to either foreclosure or a short sale and are looking for an attractive home to rent.  The supply is down because, as I have reported in a previous article, banks are withholding most repossessed homes from the market.

For all the reasons discussed in this article, the attractiveness of renting will be a serious impediment to the return of potential buyers to the housing market.  The change in consumer attitude is well summed up in this March 2010 post on a Zillow advice thread:

"We cannot wait to rent and walk away from this upside down/underwater bad investment.  And while we go through the process (foreclosure) 6 to 8 months, we will be socking away the $2600+ mortgage payments preparing for our rental.  Even $1500.00 for the rental of a home as nice or even nicer is $1100.00 per month ahead. Just think, no property taxes, no HOA dues and when something goes wrong, call the landlord.  We can handle the credit hit.  Currently we have about 840 FICO.  The way things are going we will be able to save enough cash to just buy a house in a few years."

How to increase NOI by installing electrical sub meters (Part 3 of the Adding Value to apartments discussion)

As an landlords and property managers, we are always looking for way to increase Net Operating Income (NOI) for the long term profitability of an multifamily asset.  In my previous post, we discussed the possibility of raising apartment rents despite the obvious recession situation.  Increasing rents, however, is only one way to improve your revenue flow.  Another method to is to take a look at the current utility scheme of your building:  is it "all utilities paid by owner" or have all or some of the utilities been sub-metered and the costs passed on to the residents?

In general, most newer buildings will already be built with individual electrical meters so that residents are responsible for their own power use.  The opportunity to convert to individual meters usually lies in apartment buildings that fall into the "older construction" category, which is the focus of this discussion.  If you have a multifamily apartment building that has not yet been sub-metered, installing individual electric meters is an excellent option to help decrease utility expense and increase your bottom line.  The conversion process is not difficult and - if done correctly - can be very cost effective.  Our property management company has been able to contract the installation of electrical sub-meters at a cost of $350 to $600 per unit here in Los Angeles.  Check with your local licensed electrician for more details.  

Once the sub meters have been installed on your investment property, you will need to adjust the rent amount that your residents are paying.  This decrease in rent is to compensate occupants for the fact that management is no longer paying their electric bill and that the cost will now be incurred by each individual tenant.  A general rule of thumb is to discount each resident's rent by about 70% of the average electric bill per unit.  The assumption being made here is that once the residents actually have to pay for thier power, that they will become more conservative with their energy use by a factor of 30%.  (Disclaimer:  these averages are based on sheer experience.  I do not have a source to cite other than the hands on knowledge of our Rob Freedman, First Light's Broker and real estate expert).  Here is a quick example to help clarify my point:

Let's say that the average electric bill per unit is $80. $80 x 70% = $56, which means that you will want to reduce the rental rate of each of your units by $56.  The result?  You, as owner, will realize an instant operating expense savings of $24/unit/month.  If our example is applied to a 100 unit building, your yearly revenue will be increased by $28,800.

Does this make sense from a financial point of view?  In my opinion yes, if you are planning keeping the building for another 3+ years.  Have we created some resident turnover when these sub meter conversions have been implemented?  Yes. But the turns were expected by the principals and planned for accordingly.  Let's face it, some folks just prefer to have "all utilities paid by owner" and will move on to buildings that offer such.  Overall, the building became more profitable. What are your thoughts on sub metering out your master-metered properties?  Is it a bad time to discuss such improvements in the midst of a recession?

-Trevor