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3 Potential Pitfalls of Managing ‘Investment’ Rental Properties Yourself


Eric Guggenheimer - Monday, July 03, 2017

Professional property management is like your insurance policy. You pay your landlord insurance policy faithfully every year, knowing you’re covered. When you consider the added value you receive from professional management of your property in addition to this policy, the real value you receive is a bargain for the price!

 

When you manage your own investment property, it’s essential to consider the risks. Whether you’re an experienced investor or a new one, no property comes without risks.

 

The three greatest risks you incur from having an investment property are county and city compliance, improper lease documents, and finally—as well as the costliest—a bad tenant.

 

There are many reasons to consider professional property management to reduce your risk when investing in something as large as a property. One of them is the incorporation of software systems to manage your property with ease.

 

This includes management of all the data related to tracking things like mechanical equipment, HOA rules and regulations, insurance compliance, pet compliance, and your utilities during turnovers.

 

Highlighted below are some additional services that’ll benefit you when taking advantage of a property management service for your investment:

 

  • Accounting reports for your income and expenses to use for tax purposes.

  • A pool of verified and vetted contractors with negotiated pricing.

  • Local resources to handle a multitude of problems.

  • Experience to communicate with you and the tenant to avoid problems.

  • Dedicated systems to help mitigate risk and maintain your property efficiently.

  • Property inspections which identify potential risks of the property including those in regards to health and safety.

  • Eviction prevention.

  • Swift and timely processes.

 

Now, let’s discuss these three pitfalls in a little more detail so you can better understand your risk and take the necessary steps to get your property professionally managed.

 

  1. County and City Compliance

 

The first pitfall we mentioned is proper compliance with county fair housing and regulatory rules and regulations. Ensuring that you comply with these standards and rules can often be a complicated task, which can put an owner into an expensive and time consuming problem-solving process.

 

  1. Improper Lease Documentation

 

The second biggest pitfall is improper lease documentation. You’ve heard it said that getting your agreement in writing is everything—and we couldn’t agree more.

 

However, we’ve seen many leases obtained off of the Internet which don't comply with state coding regulations nor do they provide the needed protection for the owner.

 

These documents are not only incorrect but dangerous for your investment—in combination with a bad tenant and a bad lease, it can be a challenge to defend yourself in court should a problem arise.

 

  1. Getting a Bad Tenant

 

The final and biggest pitfall for an owner managing their own property is a bad tenant. Often, tenants are not properly screened to include criminal, credit, eviction, and the ability to make payments based on many financial factors which are crucial to a successful approval process.

 

We are often contacted by landlords with a defaulting tenant to discover their lease doesn’t even comply with the correct code nor was the tenant properly screened. The monies lost in a situation like this could have covered property management fees for two to three years let alone the lost revenue and anxiety of an eviction.

 

As you can see, the idea of an investment property can quickly turn into a disaster if your property isn’t professionally managed. Even experienced property investors can make mistakes with leasing paperwork, proper tenant screening, and complying with city and county codes.

 

In order to ensure your investment property stays exactly that—an investment—you need seasoned professionals who miss no detail when getting you the perfect property, airtight paperwork to protect you in court, and the best tenants who’ll pay their rent and take care of your place.

 

Interested in finding out more about professional property management to minimize your investment risk? Find out more here.


Reasons to Use a Property Manager to Purchase Your Investment Property


Eric Guggenheimer - Monday, June 05, 2017

Investing in a property is a big decision. You want to consider all the details when it comes to buying a property for the sole purpose of using it as an investment.

 

For this, it helps to have people who know all about investment properties and the benefits, challenges, and risks they represent, namely professional and experienced property managers, such as Circle PM.

 

People who are new to investing will often buy a home they’re emotionally attached to rather than one that represents a good return on investment (ROI). When you work with property managers to buy your investment property, you can evaluate the home for its return on your cash rather than just its curb appeal.

 

Here are the top reasons why you should use a property manager to purchase your next investment property rather than going at it alone.

 

Get a Trained Eye on Your Potential Property

 

What do you look for when you go see a house?

 

Do you look at the hardwood floors, granite countertops, or the size of the closet in the master bedroom?

 

This is the eye of a home owner but not that of an investor. Property managers look at real estate from the prism of an investment. They scrutinize real properties for their ROI and their potential to be a great income property for you.

  

Property managers use their critical eye to evaluate the risks, like condition of the mechanical equipment, age of appliances, and any potential risks due to health and safety. These are all important and may not be apparent to investors who don't have experience in this area.

 

Getting a trained eye on your potential investment can help you see the property for its monetary worth rather than its sentimental worth.

 

Understand the Costs Involved

 

When you have a property manager analyze your potential property, they’re looking for more than ROI and its appeal to prospective tenants.

 

Property managers review the potential maintenance costs over the term of your investment. There are many factors that affect the costs associated with maintaining your investment. These include regulatory concerns as well as requirements by associations (HOAs).

 

These details may seem insignificant but can quickly add up. In order to better understand the costs involved, it helps to have a professional who’s familiar with each and every detail of a potential investment that could cost you.

 

Knowing the costs before you make the purchase can help you better evaluate your options when it comes to securing the best investment properties for you.

 

Evaluate Any Potential Challenges with Tenants

 

Your tenants are going to become the hub of your property investment. This means keeping them at the front of your mind when evaluating a property is essential.

 

This is where a trusted property manager comes in. They examine things like the rules and regulations of condos and Home Ownership Associations (HOAs) in order to see what challenges, if any, will be faced by a prospective tenant.

 

A property may look great on the outside, but properties that are not tenant friendly can lead to delays with placing a new tenant.

 

Property managers also examine the ease with which you’ll be able to rent your property. Some properties pose challenges with renting, which will cause a loss of potential income and a higher rate of vacancies. Others are easy to rent and will offer you the most return on your investment.

 

Considering Purchasing Investment Properties? Talk About Partnering with Circle PM

 

When it comes to buying your next investment property, trust an experienced property manager to evaluate the home for you. Will it appeal to future tenants? Will it be easy to rent? And most of all, will it be a good investment?

 

The property managers at Circle PM can help you answer all these questions and more!


2016 Year End Rental Market Condition Report


Eric Guggenheimer - Wednesday, March 08, 2017

Circle Property Management has closed the books for 2016 and now we reflect on the positive events throughout the year. There was some surprising moments as well as positive numbers for the rental market compared to 2015. The year started strong but stalled in September, October and November.

We did have a surprise bump in December which we attribute to the end of Presidential Election of 2016. November was our worst month year over year with a 23% drop in units-rented. We recovered nicely in December with a 7.8% increase over last year. Overall we saw a positive year as reflected in the data below.

Average Rent rose again in 2016 compared to previous years

Comparison To Last Year

Compared to 2015 we are positive on all the numbers with the exception of units rented "as an average". We were down 3.8% on units rented year-over-year but all the other statistics are in positive territory. Reflected below is rental statistics which is either positive or negative to the market.

Looking Towards 2017

After we reflect on 2016 our thoughts now look towards 2017 and the overall mood seems to be positive for Real Estate.. Sales were positive in 2016 exceeding "sales 2011 through 2015". On the chart below the black line with green squares represents homes sold throughout the year in 2016 compared to the past 5 years and it's apparent that 2016 was a good year to sell a home. We have heard that many of the sales fell through representing over thirty percent of all contracts that never went to closing. This high failure rate was due in part to rising interest rates and concerns about the economy, pre-election.

Washington Area Economy

With the election behind us and a new president, we see both positive and negative potentials which could effect the local economy. It's still very early to anticipate the outcome but we will follow this closely. Our only concern is the hiring freezes in the Federal Government and one would expect some caution with housing among Federal employees. We depend on new employment to drive growth and a robust rental market.

UNITS SOLD 2011 THRU 2016

If we continue the sales trend our market should improve as we start the spring cycle. We have not seen much negative correlation between sales and units rented but have felt from time to time, when tenants consider renewing a Lease we lose some to a home purchase. Overall our outlook is positive but will keep an eye on the numbers.

We have placed a data chart on our main page of http://www.circlepm.com towards the bottom of the page. We still maintain all the spreadsheets and monitor the MLS every month but limit the commenting to specific events. All of the data we extract is form our MLS system (MRIS) and still use Excel to present the data and charts.

2016 October Rental Market Conditions Report


Eric Guggenheimer - Wednesday, November 16, 2016

October is following a steeper trend started in September. The downward trend began in July and has seen a steady decline every month. This is compared to units rented in 2015; we are seeing levels similar to 2012 and 2013.

Units rented compared to 2015

  • July -1.8%
  • August -1.4%
  • September -12.3%
  • October -16%

Active units compared to previous years

On the positive side, inventory has not been impacted like last year. Our inventory for active listings as of October is below 2015.

  • October 2015 -19%
  • October 2014 -13%

Market temperature

We have spoken to clients and associates and feel the downward trend may be a symptom of the election year cycle. Although 16% drop in rented units is high, we’ll have a better understanding on the direction by the end of the year. We still have a couple of months of data to process and we can declare a trend in January.

Do Home sales affect the rental market?

The sales market seems to be affecting our numbers seeing the best year in sales since 2006 per our MLS provider. As consumers look to buy we lose them from the pool of renters and it’s difficult to quantify how sales impact the rental market but we know from experience a good year in sales affects us all.

Market Condition Report

Market update 2016 January thru August


Eric Guggenheimer - Wednesday, September 07, 2016

Our region and all of Fairfax County have performed well in comparison to 2015. We have seen small gains in Average Rent, improved Days on Market, with a significant improvement with Active Units. The quantity of Units Rented has remained constant through out the years, with very little difference year over year. The variable in obtaining the maximum rent; is effected by the quantity of units available (Active Units) and to a small part the units sold. When there is excess inventory we do see a decline in average rent due to the competition which was evident in 2015 as compared to 2016.

  • Average Rent has exceeded 2015 by 1.2 percent (2016-$2273 2015-$2219)
  • Days on market improved by 7 percent as compared to 2015. (39.63 vs. 42.6)
  • Active units has declined by 21.5 percent as compared to 2015 (1191 vs. 1450)
  • Units rented increased by .5 percent as compared to 2015
  • Units sold has increase by 6.7 percent as compared to 2015

Circle Property Management tracks the market as part of our overall process for evaluating the rental market, helping our clients better understand the cyclicality of the market and the timing. 2015 has been a good year overall with very few major issues with marketing.

Maintenance and Repairs

As of August we have seen a significant rise in maintenance and repair requests exceeding 2015 by 27 percent. The increase was not based on dollars rather it is based on work orders processed. We attribute this to the aging of our portfolio of homes and there seems to be a pattern of every seven years. We have been seeing some sort of Appliance or HCAC system problem at 7, 14 and 21 years. When ever we process a major work order we look at the age of the appliance and the age of the home and inevitably it’s falling into the seven, fourteen, twenty-one year range. I have spoken to my major vendors and their feedback is of a similar conviction, indicating the quality of products is just not what they used to be. My main HVAC contractor has told me that most of the compressors are now manufactured in Taiwan and in my own observations I have noticed the compressors look much smaller and less sturdy looking than before.

We have renewed our contract with our HVAC contractor and they had a small price increase for new systems due to mandated efficiency requirements. We have a flat rate for the following:

  • New 14 Seer HVAC system up to 4 ton AC $5,500.00
  • Recharge AC (up to 1.5 lbs refrigerant) $350.00
  • Clean coils $300.00-450.00

For detail chart Click Here

2015 Year End Market Condition Report


Eric Guggenheimer - Wednesday, February 17, 2016

Rental Over-Supply, reverses trend in November vs. December (17% + above average supply)
The Rental and Sales market for 2015 was interesting to say the least. We have seen the supply of rentals go from a high of 20% above average supply to parity by the end of the year. This has been a marvelous reversal of a trend we began to worry about mid-year. 

Average Rent Charged Slightly Higher in 2015 (Just ½% higher in 2015)
Despite the average rent charged ending the year above 2014, it was a very bumpy ride. The first half started to move above 2014 but as the over-supply started to affect the market we saw a decline in average rent charged in June which severely effected the days on market as seen on the charts. November was our worst month but it did bounce back in December. 2015 was a break-even year coming in at $2219.50 which is just $7.17 more than last year (See chart on page 2 & 3)

Average Day On Market (12% higher than 2014)
The average days on market tells the story best. Due to the excessive supply “the time a listing was on the market” was extended on average 10% over the year. There were several months where the days on market were in excess of 25% more days than the previous year. (See Chart on page 6)

Homes Sold 2015 (9% higher than 2014)
The over supply does not tell the whole story about the softer rental market in 2015. Over the past 5 years, 2015 will be a record year with a total of 14,363 units sold. This represents an increase of 9% over 2014, 1 ¾% increase over 2013, 6.8% increase over 2012, and a 16% increase over 2011. We do feel the sales are part of the overall picture and some prospective tenants decided to purchase rather than continuing to rent. This may be a symptom of rising rents over the past 15 years. As rents begin to reach a point in which a consumer can purchase for less than rent we will potentially see a decline in rents charged. Despite the rising rents we do feel this will not affect 2016.

November 2015 Market statistics for rentals and sales


Eric Guggenheimer - Tuesday, December 08, 2015

The rental market has seen a shift to lower supply but we have seen evidence of the over-supply effecting Rents in 2015 based on the average rent chart below.

Because the supply was high in the first half of 2015 we saw a much more competitive rental market resulting in lower average rents for November.


As the inventory declines we should start to see some improvement in the average rent. In the chart below you can see in yellow the decline in inventory more in-line with 2014. We did see a spike in activity in November which in part is due to the decline in sales. (next chart)


In the chart below you can see the decline in sales between October and November and an increase in units rented in November. We are not sure how the sales have affected the rental market but simply extrapolate the data. In conversations with Realtors we hear the market for sales have dramatically decreased.

In conclusion we feel 2016 will be a stable rental market and we suspect sales will decline as interest rates start to rise.

This report is prepared monthly with data collected from MRIS. Circle Property Management is a Licensed Broker and a member of NVAR, a licensed user of the MLS service provided by MRIS. We make every effort to collect the data but provide no guarantee of the statistical data in our charts.

Prepared by: Eric Guggenheimer

September Market Condition Report 2015


Eric Guggenheimer - Friday, October 16, 2015

As we enter the fall and winter market we try to examine trends and gain some insight to the coming year. As we look backwards we see year-to-date 2015 has been one of the more challenging years. The greatest influence has been the supply of rentals averaging 20 percent above previous years resulting in a more competitive market. As we attempt to look forward, we see similar concerns with excess supply and new housing options developed by large companies appealing to demographic trends.

The Days on Market have been stubbornly high in 2015 which is evidence of the excess supply and the overall competitive market.

The Average Month’s Rent remained strong through the first half but started to decline sometime in June. It’s difficult to draw any conclusions from this data but it is interesting to see an early drop.

The Sales of existing homes did compete with rentals through July but we did see a large drop in sales activity between July and August.

In conclusion

With an improving job market we don’t see dramatic changes but remain a bit concerned that the inventory will remain high creating a more competitive market. On the positive side we did see more units rented on average for 2015 as compared to 2014. (742 Vs 673) The average rent is still above 2014 by $30.

Our December year-end report will provide better overall analysis and we will be sending it out to our owners the second week of January 2016.

This report is prepared monthly with data collected from MRIS. Circle Property Management is a Licensed Broker and a member of NVAR, a licensed user of the MLS service provided by MRIS. We make every effort to collect the data but provide no guarantee of the statistical data in our charts.

Prepared by: Eric Guggenheimer

Click here for the September Market Report

Inventory is on the rise - July


Eric Guggenheimer - Wednesday, August 26, 2015

Supply of Rental Units (Active Units)

July has been an interesting month to say the least. Our concerns from previous months have been evident in the charts. The inventory has been higher than previous years and we actually started to chart the “active inventory” since the beginning of 2014 born from our concern that we may have some head winds from higher supply. Although the supply is still in a safe territory at 1.76 months supply we are 28 percent higher as compared to July 2014. Historically we have remained below 1.5 months supply in July. The inventory has remained stubbornly high throughout the year and we will watch August and September to see if the trend continues to rise. As the market reaches 2.0+ months supply we will see a dramatic increase in the days on market and suspect a drop in prices. (Average Rent)

Days on Market

Average Rent

Despite the supply of rental units at 1770 as compared to 1280 (28%+) in July 2014 we have seen the units rented slightly above 2014, keeping pace with last year. The average rent as compared to 2014 has been good to landlords till July when we saw our first dip compared to 2014 and may be the first time we have seen a drop but as an aggregate 2014 has seen on average higher rents compared to 2014. The beginning of the year started off with higher than average rents but as we progressed the curve has lost steam in June and July. We will look at August closely to see if the trend continues.

Property Sales

Property sales have been competition for the rental market. As we speak to tenants on renewal of their Leases, we have found it’s been harder to keep tenants because of the perception that it is getting cheaper to buy a home than it is to rent. It’s almost trendy to buy a home now before interest rates start to rise.

Conclusion

It is impossible to predict the future but we are able to track some basic trends in the market place trying to better understand the trends when it comes to Renting, Buy and or Selling Real Estate. We feel that our charting of the market makes us better informed and provides our clients the knowledge to make informed decisions.

This report is prepared monthly with data collected from MRIS. Circle Property Management is a Licensed Broker and a member of NVAR, a licensed user of the MLS service provided by MRIS. We make every effort to collect the data but provide no guarantee of the statistical data in our charts.

Click Here for the July Market Report

Rental Market Improves for February


Eric Guggenheimer - Wednesday, March 11, 2015

Rental Market improves in February 2015


Our forecast in January was a bit gloomy.  The data did indicate that we had a soft month mainly due to oversupply in the rental market which resulted in an average of 65 days on the market. Some had more and some had less but we were concerned about the supply of rentals being too high for the season.



Our forecast is looking much better based on the February numbers!  The days-on-market is down to 52 days to rent the average property versus the 65 days back in January. Inventory is down 12% and the months-supply is 2.09 vs. 2.52. The only weakness we see is “average months rent” but it is in line with previous months.


January and December were weak due in part to the weather conditions and some over-supply of rental units. There should be a little pent-up demand and we certainly have seen activity pick up in the past week.



The only variable will be rentals competing with sales. Sales in February were up 11% over February, 2014 so we may be losing some of our tenants to the sales market. We are seeing some evidence of renters realizing they can sometimes own for less than renting.  We always lose some renters to the sales market but it’s very difficult to measure or quantify.


Overall we are optimistic.  The weather has improved and we will return to a normal rental market with spring on the horizon.  We look to see no more than 1.5 months supply which is usually the sweet-spot in our industry.



Full PDF CHarts: Download


This report is prepared monthly with data collected from MRIS. Circle Property Management is a Licensed Broker and a member of NVAR, a user of the MLS service provided by MRIS. We make every effort to collect the data but provide no guarantee of the statistical data in our charts.




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9520 B Lee Hwy.
Fairfax, VA 22031

OFFICE: 703.349.0144

FAX: 703-349-7822

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