Through Marc Frenkiel, Appfolio
What is happening in the Los Angeles multi-family market is a microcosm of what is happening in the wider US market. Rents in the city have come down, vacancies are on the rise and with the lifting of COVID restrictions on June 15, landlords, operators and residents are now waiting in limbo as the moratorium on nationwide evictions. the state is due to expire at the end of June.
Rental report for the list of apartments for June 2021 quantify this narrative. According to their data, Los Angeles is the only subway city to have seen rents drop, dropping 2.2% year-over-year (the median two-room apartment currently rents for $ 2,054, while that one-bedroom apartments cost $ 1,566). . It is important to note that this is a decrease of 2.2% from May 2020 to May 2021. Rents fell sharply at the start of the COVID-19 pandemic. According to Marcus & Millichap’s 1Q21 Los Angeles Multifamily Market Report, average effective rents fell 4.8% from 2019-2020.
To give more context to the history of Los Angeles, it’s helpful to look at the Greater Los Angeles area as a whole. Reinforced by emigration due to congestion, costs and social issues facing LA, the surrounding areas are currently experiencing a boom period. Santa Clarita experienced 9.4% year-over-year rental growth. Median rents for two bedrooms are $ 2,521, while one-bedroom apartments are $ 2,017. In Irvine, rents have increased 1.5% in the last month and 7.1% in the last year, bringing the median rent for a two-bedroom to $ 2,939. Long Beach has seen rents rise 1.3% in the past month and 4.4% in the past year. The median two-bedroom currently costs $ 1,840.
But the Greater Los Angeles superstar appears to be the Inland Empire, especially Riverside County. In one Wall Street Journal Analysis From the U.S. Postal Service’s change of address forms, the researchers found the county had the highest number of migrations in the state, with a net increase of more than 10,000 households. As a result, the town of Riverside had some of the best rental performance of the past year. According to Apartment List’s June 2021 Riverside Rent Report, the city has seen rent growth of nearly 13% year-over-year.
Life preferences have indeed staggered, but it is unrealistic and reckless to regard Los Angeles as “over.” The city saw a 1.3% increase in rents from April to May this year, and multi-family investment activity in the region exceeded pre-covid levels.
Clearly, Los Angeles will always be a great place to live and invest, but there are obstacles. Combined with the pandemic-induced out-migration, tight government regulations and rising utility costs have put downward pressure on net operating income. Property managers should seek creative solutions to increase NOI, including more efficient rental, maintenance and utility management workflows. This is where technology can help.
Use software tools to scrutinize applicants
In a 2018 study, Zillow found that 64% of LA residents rent rather than own. Due to such a large number, Los Angeles is one of many American cities with laws to protect this segment of the population. One of these laws, encompassing the entire state of California, is the the resident’s right to a jury trial in an eviction case. Jury trials take time because the resident can stay in the accommodation until a verdict is reached; expensive, for the reason mentioned earlier, plus legal fees; and uncertain because statistically the majority of LA jurors will themselves be renters. Filtering tenants can help prevent this and protect your results.
Rather than dealing with third-party credit checks, consider the built-in selection of tenants capabilities of your property management software that provide a complete credit report with just one click. Then, based on criteria you previously set including income to rent ratio, credit score, criminal history, and eviction history, these programs let you know whether or not your criteria are met.
AppFolio takes the tenant selection one step further with income verification. This feature eliminates the need to manually verify pay stubs, bank statements or job offer letters by automatically verifying the candidate’s banking information and active sources of income. It guarantees authenticity and offers a more complete view of a tenant’s financial situation.
However, once the applicant becomes a resident, there are still more rules and regulations to follow.
Use online maintenance tracking tools to ensure maintenance requests and follow-ups are well documented
The Greater Los Angeles Apartments Association recently reported that after more than three years of deliberations, the LA housing committee approved a city-wide bill Tenants Harassment Ordinance which should be adopted by city council in the very near future. It defines illegal harassment activities, such as “failing to make and timely perform necessary repairs and maintenance required by state, county or local housing, health or safety laws”, and hardens civil and criminal penalties for owners who violate the ordinance.
Since a late response to a maintenance request can have serious consequences, it is more important than ever to have communication with the locals. Maintenance requests of all kinds need to be dealt with immediately, and modern property management software offers solutions to track your residents’ inquiries and ensure timely follow-up. Make sure to select a system that supports all mobile devices and allows uploading photos directly from a smartphone. Not only does this streamlined approach to property management and resident communication reduce friction and delays – things that can have costly consequences – but it goes a long way in building trust and a mutually beneficial relationship.
Use utility management software to promote sustainability and recover utility expenses
After a most unusual year, many owners and operators of multi-family buildings in Los Angeles are seeing NOI stagnating or compressing. The rising cost of building materials has rocked the bottom line for many, while utilities, which have historically been subject to unanticipated and widely varying rate increases, cost more and more. In 2018, Max Gomberg, Head of Climate and Conservation at the State Water Resources Control Board, mentionned the price of water in California has risen to six times the rate of inflation. With the entire state currently experiencing severe and worsening drought, it is more important than ever to promote conservation efforts.
A Study by the National Multi-Housing Council and the National Apartment Association found that properties that use a Ratio Utility Billing System (RUBS) or sub-meters to bill residents for their utility consumption had a 6-27% reduction in water use. Knowing that the most effective conservation measures occur when end users are financially responsible, now is the time to charge residents for their consumption of utilities. Besides promoting sustainability, it’s a powerful way to turn expense into income, which boosts NOI.
When it comes to billing residents for utilities, many landlords or management companies:
- Do not pass these costs on to residents, or
- Pass those costs on, but do it using time-consuming, labor-intensive, and error-prone processes.
For those who do not charge residents for the consumption of public services, utility management software can you help implement a modern, streamlined utility billing program that dramatically increases NOI. For those who currently bill residents for utilities, utility management software can dramatically improve your utility sub-metering or billing (RUBS) system in a painless and simple process. The definitive practical guide can be found here.
Looking forward to
While it has been a tough year for real estate in Los Angeles, recent data brings hope to the city’s property owners and managers:
While LA’s economy is among the last to “come back,” it is coming back. According to Marcus & Millichap’s 1Q21 Los Angeles Multifamily Market Report, the metro has seen employment growth of 2.6% since last year. As employment rebounds, multi-family real estate is expected to follow suit. Now is the time to invest in modern property management technology to sustain your business.