• I want to touch on the neighborhood safety part. Due to Fair Housing Law, Realtors cannot comment on the safety or makeup of a neighborhood. All Realtors will instruct you to look at your surroundings and see if you get a bad “vibe” but what many people don’t realize is that police reports are public information. You can run a search on the specific county’s police website and it will map out any police reports filed and what the report was for. This is an invaluable tool especially for those moving to an area they are not familiar with. Also, your Realtor should talk to you about “Megan’s Law” which essentially says you as the buyer are responsible to do your own diligence in finding out if there are predators in the area.

I took my mom to see it again the next day and after getting her blessing, decided it was time to put in an offer. I contacted my lender and he prepared my “Pre-Approval” letter. The home was priced a little below the market value but I asked for a “Seller Subsidy.” This has become more popular recently but in essence, the seller pays all the buyer’s closing costs (these can be quite substantial, another thing you need to consider when first discussing buying a home and something you should talk about when looking for a lender). That Thursday, I put together my offer. The contract was contingent on the appraisal, a home inspection and financing. I was getting an FHA loan which means I had to put a minimum of 3.5% down, more than manageable with my savings and budget. After speaking with the listing agent and telling her a little bit about my life situation, I wrote a letter to the owner and submitted my contract to be considered. An hour later, I received a call from the listing agent informing me that another offer had been submitted and she was expecting another one the following morning. She said that all offers would be presented at 5pm the next day (Friday) and that she would be in touch. Then the waiting game began.
I have always been the type of person who can’t stand waiting. Sitting by the phone on a Friday night was excruciating! When I still hadn’t heard anything by 8pm I started to get anxious. Finally at about 9:30 I got an email, they’d chosen another higher offer. I was devastated. I had counted my chickens before they hatched and become emotionally invested in the property, “I’m going to paint this room light blue and put the white couch over there” that kind of stuff. All I could think about was how the whole process was going to start again. It had taken me three months to find this place how long would it be until somewhere else came along?! I took a week off and didn’t look at a single listing, view any house or even talk about it in general. I needed to clear my head and it gave me a chance to evaluate my priorities. A week later I was speaking with one of my fellow Realtors at McGrath and he asked me, “Why are you so set on Reston?”
“That’s where I want to live.”
“Why?”
“…”
At this point I didn’t really know what to say. Why had I been so fixated on living in Reston, was it to be close to the Town Center? Was it that I liked the area? It took some soul searching but I realized that I had been missing out on great homes all because they didn’t fit into the little box I’d put myself into. I broadened my search, to include Herndon, Falls Church and Vienna. At once I could tell that there were some great houses, some for much less than what I had been looking at! By this point it was the beginning of October, and on October 10th (10 is my lucky number and I can be a little superstitious so I took this as a good sign), I went and viewed several homes in Herndon only to finally visit THE one. Because I had been looking in Reston, I had resigned myself to know I would live in a townhouse, except in this Herndon neighborhood, I could get a real house at the same price! It had a huge backyard, all new floors, cabinets, countertops and appliances. My commute was going to go from 40 minutes to six! I fell in love, submitted an offer and had a ratified contract a week later.
We had some back and forth negotiations but I won’t bore you with that part. Over the next month and a half I had the home inspection done. Be prepared to set between 2-3 hours aside for this one! For those of you who haven’t’ experience this before, the home inspector LITERALLY tests every single thing in the entire house. He walks through the whole exterior, checking for rot all along the side, goes up on the roof and makes sure there isn’t anything up there. He looks at the gutters, the heating & cooling systems, he tells you about water drainage and if it will affect your yard. On the inside, all appliances are checked, attic is inspected, water pressure and temperature are checked and much, much more. A good home inspector will show you how to do things you might not have had to do before like turn down your water temperature, where the emergency water turn off is, etc. The home  inspection went fairly well except that I needed a new roof. We negotiated again and I was able to up my “Seller Subsidy” by $2,000 to cover a roof replacement in the spring. Next, we had the pest inspection done and the appraisal completed, those went smoothly with no problems. The most stressful part was the loan process. Even working with a lender that I know personally and trust, I was being asked for documents literally until the day of closing! Due to the real estate recession, lenders have become MUCH stricter when writing loans. They are going to look into every possible aspect of your financial history and keep asking you for papers and reports; just be patient. They are trying to make sure you get a good loan that you can afford, we should all be thankful for that. Make sure that you have all your W2’s, tax returns, bank statements and paystubs ready for the lender though I’m sure they will ask you for more information.
The day before settlement, I performed my final walk through making sure that all items had been fixed and that everything was still working. The next day, bright and early my father and I went up to settlement. It turned out that the sellers were not even going to be there, they were signing later at a different location. This is becoming increasingly more common. I went from viewing the house, submitting an offer, ratifying a contract and settling on a house and I never met the sellers OR the other agent in person! That afternoon it felt like a huge weight had been lifted off my shoulders and when I pulled up to the house for the first time I could not have been any happier. It was MY home. There is a feeling you get when you look at a house and know that it’s yours, it really fills you with an amazing sense of pride; I hope everyone reading already has or will get to experience that feeling someday. I could not stop smiling!
When it was all said and done I knew that I wanted to share my experience with others. I learned a lot not only about myself but also a lot about the profession. As a Realtor I thought I knew what I wanted and I was going to get it myself. What I realized is that I didn’t know what I wanted and that is the single most important part of a Realtor’s job, to help you find what you want. Whether you’re looking to buy a house in 2012 or it’s not even on your radar yet, I want you to keep one thing with you: Trust the person you are working with to really get to know YOU. You don’t realize it but you don’t know what you want yet. It is your Realtor’s job to help you discover that. Having someone with you to guide you, listen to you and broaden your horizons is imperative in the search for your dream home. McGrath Real Estate employs a team approach to our relationships and want every client to feel like part of our family. You can trust in family, through the good and the bad, to always be there for you and McGrath Real Estate would love you to be part of our family.  —Written by Lindsay Curtis, Realtor and Marketing Associate at McGrath Real Estate

Like you expect your tenant to live up to his responsibilities in your home, you plan to live up to yours as a landlord. It may seem like common sense, but the more understanding and cooperative you are with your tenant in most cases it will increase their good will towards you and encourage them to treat the home as if it was theirs, which is one of your goals. So what does it mean to be a “good landlord”? This means providing the home in an acceptable condition for move in, granting reasonable requests and addressing repairs in a timely fashion. (McGrath Real Estate Services, Inc. does not recommend conceding to every tenant request just to gain some good will but there is a benefit to being reasonable.) The last point is the reasoning behind our recommendation to not have a home warranty. Home warranties prolong repairs and oftentimes require multiple trips before the job is satisfactorily done. Below are two recent and prevalent examples of McGrath Real Estate’s clients’ home warranties gone awry:

• McGrath received an emergency repair request for an air conditioning unit that was not functioning. While this is not considered an emergency, we do try and prioritize A/C requests to alleviate discomfort of the tenant. The property was identified as having a home warranty. Dave Buckingham, head of the Repairs Department, contacted the home warranty company and informed them of the issue, at which point we were informed that this particular contractor was a week out on maintenance calls and would not be able to go to the home for at least seven days. When they finally did visit the property, the contractor found that a dirty air filter caused the air conditioning to malfunction. The warranty company would not pay to have it fixed because this issue was not under warranty. The unit was still not working, 10 days after the initial request. McGrath then sent out one of our preferred contractors who had the problem fixed and the tenant was charged.

The relationships that McGrath has made with our contractors over the years allows us to make our requests a service priority. McGrath, now managing over 650 homes, offers a huge supply of potential business for our preferred contractors and while our vendor policy is in place to protect your interests, it does provide several benefits to our contractors including quick payment upon receipt of their invoice.

Our contractors are also keenly aware of determining whether the repair is a defect or tenant caused and will inform us of their professional opinion of who should be responsible. As you can see from the above example, not only was the issue not fixed in a timely manner, upsetting the tenant who had no A/C in the summer for two weeks but as the owner, you still had to pay a deductible for the initial warranty that did not cover the issue.

• We received a repair request for a broken dryer. The home was identified to have a home warranty so the warranty company was called. The contractor went out and determined that the dryer vent was dirty and just needed to be cleaned. This was done and assumed that the issue had been resolved. A couple days later the tenant reported that the dryer was still not working. When we sent out one of our contractors he determined that in fact the dryer had a defect and would need to be replaced. Again, the owner paid a service charge for an incorrect diagnosis, the tenant was charged for cleaning the vent which turned out to not be the issue and the repair would take another week to be completed.

When a contractor receives a work order from a warranty they only receive a repair deductible typically between $60-100. The reality is this makes contractors working with warranty companies look for the “quick fix” instead of identifying the actual issue and correcting it. All of our contractors sign our vendor policy which states that not only do we require them to provide us detailed before and after pictures to prove the repair was done, but if it is determined later that they did not perform the job correctly and to our satisfaction, we can leverage our relationship with the vendor to go back out and bring to our standard. McGrath holds all of our contractors to a high standard and are constantly implementing new policies in our Repairs Department to ensure that repairs are handled professionally, quickly and at a good value price point. To learn more about the Repairs Department read the Spotlight on the Repairs Team.

We could go on with several more examples but in the end home warranties in a rental home tend to cost the homeowner more than if they had relied on the property manager’s contractors. McGrath understands the appeal of the home warranty and appreciates your desire to keep the home in working order while you are away, but we believe that a home warranty is not the best way to accomplish this. Our job is to protect your interests and through years of experience we know we can offer our clients the lowest prices at the highest quality. If you ever have any questions about a home warranty or the management of your home, please contact our Dave Buckingham of our Repairs Department at Repairs@McGrathRealEstate.com

Expansion tanks are used to prevent water leaks from your hot water heater. When your hot water heater turns on, the water within the piping system begins to expand. Without the expansion tank, the expanding water can create too much pressure on the heater and potentially fail. If you have an expansion tank the expanding water enters the expansion tank.

The expansion tank contains compressed air and a rubber “bladder” that holds the water until needed. Eventually, the hot water is drawn from the system thru a faucet and the expansion tank releases the extra water into the piping system to be used by you.

Fairfax County recently passed a new  county code requiring that all hot water heaters have an expansion tank installed if any maintenance is done to the water heater.

What does this mean for you? If your hot water heater needs maintenance for any reason, the contractor sent out will be required to note that there is no expansion tank and will be required to install one if any work is done to the hot water heater. Depending on the size of your water heater, this installation (parts and labor together) typically runs between $150-$250.

In Loudoun, Arlington and Alexandria counties the expansion tank is only required if the whole system is being replaced. Most water heater specialists will recommend you install the tank but it is not required.

The diagram shows you what a hot water heater and expansion tank look like and how they work.  If you have more questions regarding the mechanics you can reach out to our Client Advocate department who will direct you to a professional water heater specialists.

It may seem like a hassle to worry about but the expansion tank has some great money saving benefits you may not even realize. Not only are you preventing future leaks with this investment, you’ll also see a reduction in your water bill each month! The extra water that you don’t use is no longer pushed back into the water main supply, instead it is held in the tank for your later use!

Investing in a expansion tank could be one of the easiest, cheapest, “bang for your buck” home improvement fixes you can make. While your home is tenant occupied it is important to consider their safety as well as yours when you return. For a very low price you could potentially be saving your family from a disaster. For more information please contact our Repairs Department at Repairs@McGrathRealEstate.com.

My family has owned rental properties since the 1960’s when, as a Foreign Service family, my father’s career took us in and out of Northern Virginia. While away, the home we had left behind became a rental property. When we returned, we would inevitably buy a new property to live in and that would become home. This pattern repeated itself many times and by the time I was in high school our family had become a little property management company. We spent a lot of summer “vacations” painting and preparing property for its next tenant. To my father it came down to a very simple form of analysis of “if owning one is good, owning two is better”. He has long since sold the majority of his property and rode off into the sunset of retirement but owning and managing rental property is almost a part of my DNA. I share this background with you because this is where I am coming from – My basis of experience. I have seen good years and bad ones for real estate and I have seen what it can do over time.

In my “adult life” there have been three periods of time when the value of property in Northern Virginia went down. The first was the credit and interest rate crisis that peaked in 1981.The second being a result of dramatic changes in banking regulations in response to the failing of then federally insured “savings and loan” associations in the early 1990’s and most recently and most dramatically, the decline in prices beginning in 2006. Interestingly, each of these periods of value decline were related to financing events. The first two when financing became prohibitively expensive or not available at all. Mortgage rates actually peaked at 18 %(!!) in 1981. In the early 1990’s the problem wasn’t with mortgages but with short term bank loans needed to support land acquisition and development. In this event, the lack of financing caused massive foreclosures of undeveloped land. There was no longer a market for land and builders bought at foreclosures allowing them to buy the land which new homes would be built upon much cheaper. “Sticks & bricks” still cost the same, but the lower land cost meant builders could make their same profit margin, undercutting the prices of re-sales. Initially this made builders more profitable but as large profits drew more competition, profit margins came down to normal levels by bringing the price of new homes with the greatly reduced land costs. This brought the value of existing homes down to points necessary to compete with new homes. In effect, it was really the decline of the value of the land under existing homes that declined. While the 1981 and 1990 events were caused by the cost of and then the lack of financing, our most recent, and deepest decline resulted from financing being too readily available to purchasers who in the end were not qualified to afford home ownership- and that created a “bubble”.

Each of these periods of decline in property values was not caused by national recessions. In fact, they were masked by them. Monetary policy is national in nature. Real estate markets are local. Northern Virginia real estate values have survived several soft national economies without losing value. Another thing in common about each of these three periods of decline, it seemed that nobody saw coming the events that caused the declines until they had sprung. These were the three and only three periods in my lifetime that property values in Northern Virginia actually fell. All of the other years were “up” years or at least not “down” years when the natural economic laws were not interrupted by financing events related to national monetary policy that artificially and temporarily affected the supply or demand factors that determine value and not by the forces of our local economy. A steel mill that employs a large percentage of a local population didn’t close here. Hasn’t our news cycle been dominated by recession and news of unemployment? According to the Bureau of Labor & Statistics, the national unemployment rate at the end of November 2010 was 9.8%. At the same time the combined average of Arlington, Fairfax and Loudoun Counties was 4.2%. At the end of 2011, national rate 8.7%, local economies 3.7%. The decline in property values here haven’t been the result of a national recession. Again, it has been masked by one. One more significant characteristic of our national monetary system is that interest rates are set based on the performance of a national economy. Mortgage rates would not be 5% or less if the national economy was performing like our local economy. These are the reasons why after the financing issues had been resolved in 1981 and 1991, and after the few “hangover” years of damaged market psychology which followed them had passed, the economic fundamentals of our local economy once again became the predominant market force driving the value of housing to new highs. And it will happen this time too.

Real estate is a “valuable commodity” because people will pay money to buy it or to use it. How you mortgage it on the other hand is up to you. In the past, what has made real estate powerful as an investment is the ability to finance it. The financing creates “leverage”. The ability of a smaller amount of money (the down payment), to control a much more valuable asset is called leverage. Leverage is powerfully positive when housing values are going up. It is powerfully negative when real estate values decline. With the rise of self-proclaimed real estate rags to riches infomercial “experts” one would have thought that buying real estate with no money down was the only way to invest in real estate. Turns out it was only the most dangerous way. What we do in our analysis below is strip away the cloud of financing to better understand how the asset has performed in recent years and how it is likely to perform in 2012 and beyond.

For the examples and illustrations below we are using a “typical” rental property although nearly

Rent Received for a typical rental property

all rental property in Northern Virginia operates in a similar manner. For our model, we use a three bedroom townhouse located in the Franklin Farm community located off the Fairfax County Parkway between Reston and Fairfax. We use it because all of the operating data is readily available to us since we have managed it since this property since was purchased in 2002 for $169,200. There are other properties where the operating metrics may be somewhat better, (and worse), and when selecting an investment property, many of these metrics should be considered. In, 2003, the rental value was $1,350 per month or $16,200 per year. In 2012 the rental value is $1,700 per month or $20,400 per year. The graph illustrates this rental history.

Now let’s look at the sales value over the same period. The property participated in the rapid run up in value peaking in 2006 as most properties did. Then it participated in the decline market value as well, bottoming at least for now in 2009. In 2002 when the property was purchased, it took $169,200 to purchase $16,200 of annual rental income. The purchase price was 10.44 times

Sales Value over Time

the annual rent (16,200 X 10.44 = $169,200).

At the peak of the market in 2006, it took 21.13 times the annual rent to purchase the property ($355,000 / $16,800). In 2011, with the value of the property 23% less then the 2006 peak and the rent 16.1% higher, the property is back down to approximately 14 times annual rent to equate to the sales value of the property. Now, let’s add in the impact of interest rates for an investor owned property over the same period. Here’s where it gets powerful. In 2002, the interest rate when this property was bought was 7.50%- with a 20% down payment. Today that rate is about 5.25% The obvious answer is that rates have fallen 2.25%.

The less obvious answer is that if this property were purchased today, the interest expense is 30%

Annual Loan Payment

less than it was in 2002. That is, interest expense, the greatest cash flow expense in owning the property has been reduced by 30% since 2002 and 46% since the market peak in 2006 (20% down payment purchase in both cases).

Note that the relationship between annual rent and loan payments – the distance between the red and green lines is better today than at any time since 2002 (see graph below). The cash flows of a rental property today are superior than at any time since 2002. Of course the major opportunity in owning a rental property is the possibility of the property going up, ( and not down!) in value. 1981, 1991 and 2006

Property Trends

turned out to be the wrong times to buy them. Above we have graphed the rental/property value relationship during the run up in property values prior to 2006 and since. If we graphed these relationships in 1978 and 1992 declines, they would look much the same way. We are not saying here that the relationship between rents and property value finds a level that causes a subsequent period where the value of housing begins to go up again even though it has happened in both of the previous instances. What we are saying is the operating cash flow associated with purchasing a rental property in 2012 is better than it has been in the past decade. The value of your property at some time in the future will become more valuable than it was in 2006. When? Who knows? We do know that the cash flows associated with owning a rental property today are superior to what they would have been at any time since sometime before 2002.

At the end of the day the value of housing is predicated on the same thing as all valuable commodities. Supply vs. Demand. That is why rents are going up. Even when the periods that values went down, they did so because of the affects to supply and demand of each financing debacle created. In 2012 will property values increase? Who knows? There are factors that we cannot measure that will determine the “when”. Will the government as the ultimate backstop of foreclosures, dump all of the properties they now own at one time? Is the wave of foreclosures now behind us? These and other factors will affect the supply of houses on the market. We know that supply has not been significantly increased by new home construction. The National Association of Home Builders reported in December that in 2011, the fewest number of new single family homes were built since they began keeping track of this statistic. If 2010 wasn’t the second lowest it was close to it. Big builders have reduced their operations to shells of what they used to be. If given the green light by market demand to begin building again tomorrow it would take time to rebuild the companies that build the houses. And when that green light does come on, the builders will find that local municipalities never stopped passing rules and regulations related to building and land development that make the approval process take longer and cost more to be approved. When demand in the market does return, builders will face a planning and permitting process that takes longer and will add to their costs – which is another factor that will delay the ability to expand the supply of housing. In our area, values seem to have bottomed somewhere in 2009. We have been bouncing along that valuation line since. Is there a catalyst that will move prices up in 2012? Maybe not. But the long term catalysts are currently forming like storm clouds, still miles away but ever so surely moving towards us. In the supply-demand equation, demand can change quickly; supply, cannot. In the years that the value of housing does not go up, the greater is the likelihood that the values of rents will. That is what our graphs showed us. What will spur demand? Increasing population, jobs and psychology. Psychology can change faster than population or job growth. We have been in a very negative news cycle regarding real estate since 2006. So much so that many otherwise first time homeowners have decided they will be renters for the foreseeable future. Ownership of real estate has been depressing. What will happen when the news cycle turns positive? Many in the rental market will choose to be homeowners again. All the while during this downturn, significant public improvement projects that typically positively affect values have gone forward. If you are reading this in Timbuktu you probably haven’t been to Tyson’s Corner in a while. All you are missing there is a huge traffic mess while the construction of the metro rail extension is underway. The “Silver line” line is scheduled to operating to Reston by the end of 2013 and to Dulles Airport before 2020. The direction of the future of value of properties is not hard to determine. The timing of movements is. But we know the operating performance of a rental property bought today is better than any time in the past decade. What we have discussed above are some general metrics that provide a broad brush view of the operations of a rental property. A detailed investment analysis would include inclusion of all operating expenses an investor would incur including real estate taxes, insurance, maintenance and repairs, home owners association dues, management and leasing costs, and the effects of vacancy which would all reduce the income available to pay debt service. What we can tell you for sure is that based on the operation of a rental property, the relationship between rental income and the ongoing costs of ownership, there has never been better time than it is right now to purchase. And so long as the sales market remains flat, the pressure on rents will continue to be strong. Some day in the future when we look back at 2012 with the clarity of hindsight, we think that once again two will be better than one. That is what we believe. So much so that we are considering putting together pools of investors to buy several properties this year. If you might be interested in participating, please let us know. Or, if you would like to share your thoughts on our markets, or the future of investment properties let’s talk about it on our blog!

McGrath Real Estate Services’ role throughout your rental experience is to serve as your property manager. McGrath will be the central hub for issue management and protect your interests within the perimeters of the lease. All issues will be directed to our establishment and will quickly filter through our departmentalized structure regarding repairs, inspections, marketing, accounting and client advocate services including communication, quality control and problem solving.

You may want to think of McGrath Real Estate Services as your personal “middle man” throughout your entire rental experience. “McGrath may act as a buffer, between you and your tenant. This removes emotions, particularly when we need to be the ‘Bad Guy’.” said Gregg Waters, Client Advocate for McGrath Real Estate Services.

You should be sure to govern your connection with your tenant as a business affiliation. Although you may have a perceived connection with your tenant, for example your children attend the same school, you belong to the same community organization or you simply may have had a friendly conversation at the grocery store, you must never attempt to resolve any issue with your tenant.

When your relationship with your tenant evolves into a personal bond, it becomes difficult to maintain that business mentality. More often than not, an issue may occur that results in a less than desirable outcome. As time passes, IF, a tenant and owner form a growing friendship, and then the lease term ends and the owner returns, IF, there’s a security deposit discrepancy it could become very stressful for the owner. For example: Upon the owners return, he/she finds the home filled with thousands of dollars worth of damages. The tenant contacts the owner over the security deposit issues, rather than dealing with us, on your behalf. The owner is then stuck with a dilemma because they are fearful to take the security deposit from the tenant due to their developed relationship. This allows the tenant to take full advantage of the situation, leaving the owner at a severe financial loss with a house full of security deposit issues that were above the normal “wear and tear”.

Tim Savin, Client Advocate for McGrath Real Estate Services pinpoints human nature as the sole reason why landlords and tenants often attempt to resolve issues amongst themselves instead of adhering to the proper protocol. “It is difficult to remove yourself emotionally from a situation when it involves your personal investment,” Savin said. Although this personal attachment is a natural behavior, the landlord and the tenant have a contractual relationship with each other and must abide by the standards that are set in the Lease.

With over 30 years of experience, McGrath Real Estate Services is fully equipped with the tools to resolve any and all issues that may occur between the landlord and tenant. As you have solicited our assistance in your rental experience, allow us to perform our duties to the best of our ability by abiding by our simple rule: there should be no communication between you and your tenant. If you have questions about this article or your level of involvement with your tenant, feel free to reach out to us anytime!

So , does McGrath Real Estate Services recommend you accept pets at your home? Not specifically. We do however, recommend you at least consider the pet, and more importantly, the pet owner on a case-by-case basis to better evaluate your options by using strategic business sense.

Often, homeowners like yourself, fear that you don’t want your home to become destroyed by pet odors, stains and scratches. McGrath Real Estate shares your concern and wants to protect your home too.  However, upon taking a deeper look you will find that this type of application represents a different kind of “stereotype.” Let’s look at the facts:

EXAMPLE: Your  home is on the market for rent. For this example, we’ll say the home is available

Sure he's cute but do you really want him in your home? The answer might be yes!

on July 1st for $2,500 per month and that you will consider pets on a case by case basis. Suddenly you have an application presented to you! It poses several strong points, but also presents some potential risks. Typically, we have some hesitation from landlords when we present an application from a potential tenant with pets. This hesitation is prudent, but it is important to explore the risks and the facts before making a decision based on generalizations or fears.

In our example, the applicants are willing to move in July 1st. This means rent starts coming in with no vacancy time in between tenancies. There are expenses in lawn maintenance and utilities while the house is vacant, and certainly rental income vacancy loss is something we know is undesirable to all landlords. The applicants are offering a security deposit  of $2,500. Now, let’s say for a moment that you decline this application. The next application comes in but they are offering a lease start date of August 1st. Even if this next application is offering $2,500, and IF they represent “less risk” (no pets) the value lost in waiting for this second application is $2,500 in vacancy/opportunity cost. Additional variable costs could include utilities and lawn maintenance between tenant move-out and August 1st move-in (likely would amount to approximately $300).

That $2,800 difference in waiting for the next applicants is what we call the “hidden deposit”. In the worst case scenario, IF the original applicants become a problem in terms of pet damage, you have a $2,500 security deposit + the pet deposit (normally $500 for the first pet and $250 for each additional), PLUS the July rent that you would not have received otherwise. This $5,500 will hedge against your risk if the pet(s) does damage your home. In our experience it highly unlikely that the cost to re-paint, re-carpet or re-finish hardwoods, and repair any other damages caused by pets would exceed this amount.

The above example offers an objective view of renting to tenants with pets but there is a subjective approach we take to pets as well. The processing of all applications includes a landlord verification from both the current and previous landlord. If the applicant has a pet, we ask both landlords about their experience with the pet; was it well-behaved, did it cause damage etc?  If the landlord gives us a negative report about the pet we WILL NOT recommend you accept. We also recognize that all pets are not equal. There is a difference between a four month old puppy and a five year old Labrador. We always require applicants to provide the type, breed, age, size, gender and whether it’s been spayed or neutered for all pets. If we deem the pet to be an unacceptable risk to you, we will not recommend you accept.

There are also indicators that we look at to determine the responsibility of the pet owner. Those who are accountable in their lives tend to be responsible pet owners. An applicant with a 750+ credit score, great landlord references and stable employment shows they have organization, responsibility and care in managing the financial aspect of their lives. This tends to extend to the way they treat, train and care for their pets. As always there is no way to guarantee any applicant’s pet will not damage your home but our annual inspections are an excellent way to “check-in” and verify the pets aren’t damaging the home and if they are fix the problem immediately.

The alternative again is waiting to see what the next application brings. Even if they present less risk as applicants, maybe the next applicant will also have pets, or maybe their incomes are less stable or too new, or a further back start date, or a lower rent offered, etc. That initial offer you passed on with pets and otherwise perfect applicant with little to no vacancy time suddenly looks like the “one that got away”.

We know that it can be scary to accept pets, especially with nightmare stories out there (which are the exception, not the norm), but please try to use non-emotional business reasoning in your analysis. Feel free to consult with us. We certainly don’t intend to push you towards taking applicants if you are uncomfortable and have good reasoning for not doing so. We ask you to consider pets which can help you achieve your cash flow goals, and can still buffer against your risk for damage. If you have questions feel free to contact the Leasing Department.

The Client Advocate team was created to be your point of contact throughout your experience as a Landlord

Until 2007, our company utilized the one point of contact property management approach.  One property manager was pretty much in charge of everything associated with that property. Tasks such as meeting prospective new clients and explaining our services, marketing and leasing the home, move-in, move-out and annual inspections, repairs and emergency maintenance, as well as communication about the property, all were handled by one point of contact. The good thing about the one “point man” approach was this person was familiar with the property and all of the issues related to it. The downside was that this point man could be dealing with an emergency repair on one property with a prospective renter wanting to see an available property on the market, meanwhile another owner was waiting to hear back about an issue at their property, a contractor was trying to get into yet another property, tenants were late with their rent at another property, requiring collection procedures to be implemented on yet another one. As you can see, what naturally ended up happening, was that some property managers were excellent at certain aspects of the job and not others. Some were good at communicating with owners, but did not perform thorough inspections or manage repairs in a timely fashion. Other managers were getting behind on some tasks or prioritized one property or it’s issues over another. And across the board, “emergencies of the moment” were constantly getting priority attention over non-urgent, but often more important matters related to the property. We also ran into the problem, if one point of contact was on vacation, or left the company, no one knew the particular history of the property nor its outstanding issues. Another result of this system was our new clients were getting different indoctrinations to our company and policies, because many different people met with them to explain our services. This resulted in many different levels of expectations. It became important that our presentations be consistent and cover a broad range of policies and procedures, to ensure everyone was on the same page.

So, some may be surprised to know that we actually transitioned away from the system that some are asking for again. If the current system is better as we believe, from the results of the surveys, we are not conveying the benefits appropriately, that is for sure. “Sometimes it seems like the left hand doesn’t always seem to know what the right hand is doing” or “I feel like I’m communicating with a sea of anonymous and varying people each time I need to initiate something,” both of these were comments received in our survey. On our end we are constantly working to eliminate the communication issues in the departmental/team system we utilize now so you feel the advantages of this system over the previous one.  This system is designed to make each management activity the responsibility of a team instead of ALL the activities the responsibility of one individual. Now, our property inspectors are no longer taken away from an inspection when an emergency repair comes up, all they do is focus on move-ins, move-outs and annual inspections. Because inspections are their primary job, they can schedule and coordinate within a systematic approach, so annual inspections do not get pushed back because it is not an “urgent” priority. Likewise, our marketing department can focus on securing appropriate tenants and putting our properties in a competitive position in the marketplace. Marketing is what they do. These changes have resulted in measurable, tangible results. Vacancy is your most costly expense. You will see in the article “Property Management: Evaluating an Industry,” that our company’s average “days on market” for the properties that we manage is the lowest of any company in Northern Virginia, and by a significant margin.  Our position as the leader, now five years in a row, is a result of our departmentalized approach. The group in charge of leasing your property is not responding to emergency repair requests. They are responding to prospective tenant leads instead.

Our Client Advocate department is intended to be your primary point of contact, (clientadvocate@mcgrathrealestate.com) so you have a singular source for any questions or concerns related to your property. Your client advocate is charged with getting the answers on your behalf no matter what department your question is related to. I can provide several other examples of measurable improvements from this approach. But again, we also hear what you are saying in your survey responses. We have to do a better job here of clearly communicating with you so that you have confidence in our team approach. It is what you think that matters.  Better communication is one goal of this newsletter as well. As your property manager, we only have a limited time that we will have the opportunity to serve your interests. We are very aware of that. We want to make the most of it.

Pricing: If this is your first time on the market then part of your property management consultation with Tommy or Brian included a detailed market analysis and pricing recommendation. For clients who have already successfully rented the property and are now in the renewal and remarketing process, your first correspondence will be with Jessica Stinnette, our Marketing Director. Jessica has been with the company since 2003 and in that time gained an extensive knowledge of rental rates and market conditions throughout Northern Virginia. She will provide you with a detailed market analysis as well as an explanation and her expert recommendation on where to most effectively price your property. Once you have decided on a price, Jessica creates and lists your home on the active market. When the home is about to go on the market we immediately assign one of our eight leasing agents (Tommy Chambers, Brian Chevalier, Dave Anderson, Lindsay Curtis, Meghan McGrath, Jessica Stinnette, Tim Savin, and Dave Buckingham are all licensed Realtors®) to be your “stand-in” and show the home. Their first order of business is to visit the home and conduct a “Leasing Assessment”.

Leasing Assessment: The “leasing assessments” occurs every time a property goes on the market. We found that when the owner was still in the property, the home would show fantastic because the owner had an incentive to show the home in it’s best light. There was less control over showing quality after the first initial marketing stage and a tenant was the one residing in the home. McGrath implemented the “walk-through” to identify any issues before the home is activated, take marketing photos for the listing and to educate the tenant on what is expected of them during the time your home is on the market. In 2010, McGrath Real Estate had an iPhone “app” specially designed to streamline the process and ensure all useful information was captured. While this report will not be given to you directly, if an issue is identified you are immediately notified and a plan of action is formed. We’ve found the “walk-through” to be an excellent way to set expectations with the tenant and allow our Agents to be personally familiar with your home. Once a home has been given the “all clear” by your leasing agent, the home is ready to be activated on the market!

Showing Activity: Now that your home is active, many owners feel bewildered not knowing how things are going. Each week Lindsay Curtis from the marketing team will email you a showing activity and feedback report. Lindsay pulls the showing activity report for all our active rentals and requests feedback from all the agents who’ve shown your home. Realistically, only 30 percent of feedback requests are returned however, the feedback we DO receive is very insightful and allows us to more effectively market your home. Any feedback received is then forwarded on to you. The responses can also be an opportunity to answer interested parties questions to produce an application! Lindsay carefully tracks the showings each week and identifies if we aren’t getting enough activity through the home. If this is the case it might be a function of pricing. Lindsay conducts an updated marketing analysis to send to you and if necessary, suggests lowering the list price.

Through the years we’ve found that if those three aspects are in sync, the home will rent quickly. As of this printing, McGrath Real Estate Services had the highest number of rentals put on the market and successfully rented in 2011. This careful attention to detail has led to McGrath having the lowest days on market of all property management firms in the area, reducing your vacancy costs. When an application is submitted it is sent to our processing department.

Our processing department (which performs the rental application processing and tenant screening) is headed by Jessica Keys, a very organized and detailed professional. She uses her detective skills to investigate and ensure that the applicants are people that we want to rent your home. When the application comes in Jessica checks that the lease length works for your timeline. Jessica is very cognitive of the seasonal aspects of the rental market and ensures that leases end when it is most advantageous to you. The first order of business is to pull the applicant’s credit score. If there are any red flags (late payments, lots of inquiries, collections, liens, judgments) she digs further as well as look up the court records to further define the discrepancies. We have found that credit score is one of the best indicators of how a tenant will pay for rent. It goes without saying, the higher the credit the more reliable tenants tend to be.

Next, Jessica will check current AND previous landlord references going back up to ten years. Previous landlord references can be of more value than current. If they are bad tenants, it’s possible that the current landlord will say anything to get them out of their property. Previous landlords will be honest since they have nothing to lose. As an extra precaution, we always verify through tax records that the person they list as the landlord actually owns the place; after all, we want to make sure we’re speaking to the correct person. Lastly, Jessica verifies employment and stated income, making sure that they financially qualify and that their job stability is good. We use a qualification rate based on tenant’s rent amount to income.

Once all information has been verified the application will be submitted to you by Meylin Cano, our Leasing Coordinator. She will give you a breakdown of all aspects of the application as well as our recommendation. If we believe the application is worth considering, but not to your best advantage, Meylin will give you our recommendation for a counter offer, many times with a higher rent or longer lease. If you choose to accept the application, she prepares the lease and sends it to the future tenant for signature as well as coordinates the move-in with our Inspections Department. Organization and follow through are key in this stage of the game and Meylin is great at ensuring no time is lost. Lastly, the lease is signed and sent to you for ratification.

We understand the stress and confusion that packing up your home can entail particularly if you’re moving overseas or across country. We recognized that many of our clients felt bewildered by the process of putting their home on the market for rent while coordinating a new stage in their life so we implemented the Owner Pack-Out. Property Manager, Dave Anderson, conducts all the owner check outs. The purpose for meeting you is to gather information such as parking space numbers, HOA rules and information, confirmation you have added McGrath Real Estate Services for “in care of” status to your utility companies, tag hose bib cutoffs for outside spigots as needed, and any other pertinent information. In addition, Dave will guide you towards solutions for items that may need to be addressed, including repairs and maintenance, cleaning, etc.  This is an opportunity for you to give instructions on how to clean certain surfaces for counters and floors, any specific or unique features of the home that need to be passed on to the future tenants. Dave is very cognitive of questions that many people have when turning their home over to McGrath Real Estate. “I think that one of the best values for my “Owner Pack-Out” visit is to provide guidance and peace of mind during their hectic move. Being able to answer any last minute questions really helps ease our owners’ minds. ” At the end of your check out your home has officially come under McGrath management! Once this happens your transition begins to the Client Advocate who will guide you through your time with us. If you ever have any questions or comments for the marketing team never hesitate to email them at Leasing@McGrathRealEstate.com.

When a repair call comes in our new tracking system first searches for any preferred contractor or warranty/service contract provider that you

The Repairs Department Ensures that Repairs and Maintenance are handled quickly and effectively.

have indicated to us (in your management agreement). If the repair is expected to be under $500 we will approve the repair. If the cost is expected to be above $500 and the issue is not urgent we will ask for an estimate. We will obtain up to three estimates for non-urgent items over the $500 threshold.  Next, the appropriate contractor is determined and simultaneously a notice of the impending repair is sent to you, the contractor and your tenant. You are made aware because the next month’s proceeds may be affected. The contractor is given the nature of the repair, contact information of the tenant and our expectation as to when it should be completed.  To the tenant we provide contact information of the contractor. The tenant notification has proven to be one of the most effective and appreciated implementation as it empowers the tenant to contact the contractors directly in the event an appointment needs to be changed for any reason. It also holds our contractors accountable to promptly set up appointments and complete the work in a timely fashion.

On Friday every week, Richard Price of the repairs department, contacts all tenants who have submitted a repair request in the last week to confirm that progress has been made. “The tenants are happy that McGrath is staying on the top of their game rather than letting things pan out on their own. Repairs are quicker, smoother, and more efficient for not only the tenant, but also the owner and McGrath,” says Price. As part of our regular procedures, we contact vendors on all outstanding items to determine the status to ensure that the tenant and you, when appropriate, are aware of the reasons for any delay in completion. We are no longer relying on the contractors to keep everyone informed nor are we are allowing contractors to take our business and your business for granted. As a further measure of quality control, once a repair is completed Price sends out a survey to the tenant to evaluate the repair process. Specifically the tenant is asked to provide feedback on the process in general as well as the performance of the contractor (including workmanship, professionalism and punctuality). The data collected using this evaluation leads us to the next step in the redesign.

We have established a vendor responsibility policy which we require to be signed by any vendor who expects to do business with us. Amongst the responsibilities of the vendor is the requirement to bill us within 30 days of completion of the job. Bills will no longer arrive months late (a problem with some vendors in the past). We have all contractors’ rates and the rates of their competitors on file and we must be made aware of any labor rate increases before we order work. Pictures are required to be submitted with all invoices to ensure we have documentation of the repair. As a legal precaution, our tracking system also ensures that every contractor we use is current on their liability insurance.

Many vendors we use have been working with us for many years and we know that their prices are reasonable, they deliver good service, and they complete repairs in a timely manner. But even our most trusted contractors are being evaluated on a regular basis. Dave Buckingham, the Repairs Manager, and his staff interviews new contractors regularly to promote competition among our vendors, and we are always looking to upgrade the vendors we use. Our vendors must consistently perform at a high level or they will no longer earn business from us.

Lastly, when procedural changes are made, it is often difficult to change the dynamic and enforcement between contractors and the McGrath employees who have known each other for many years. To cause this positive change to happen (instead of just being discussed), we changed our repair personnel and have made the new staff accountable for implementing these new procedures. Dave Buckingham, a McGrath property manager for over five years, took over as the manager of the repairs department in 2009. “I have worked with McGrath for five years and while it was a challenge to re-design this department, I had clear direction that improvements were necessary. Today our contractors are very cognizant that they are being continually evaluated on objective performance standards and our McGrath employees are fully invested in the new system.”

While our company culture is about continual improvement in every area, we are confident that the area in which you will see the most significant improvements in 2011 is in repairs. We thank you again for your participation in our surveys. Your comments were the catalyst to these improvements.

Meghan McGrath, Accounts Supervisor, collects rental payments from the first   to the fifth of every month. We encourage all of our tenants to pay with    automatic payments through their tenant portal but checks and cash are also    accepted. On the 10^th of every month Meghan pays you the disbursements that  are due to you. If we have still not received rent by the 10^th you will be    informed that your rental payment will be late this month because of it. Also  please note that depending on which bank you use, it could be a couple days  before the payment clears and you can access your funds.

The monthly owner statement is created on the 11^th of the month. It will cover  the period from the 12^th the month before until the 11^th of the current month.  This was a recent change we made at McGrath Real Estate Services, Inc. based  on your feedback. It allows you to see whether your owner payment was received and that it was dispersed to your account. On this statement you will see a detailed description of rent received, management fee charged, as well as any repair invoices that you were charged.  Please “Favorite” the URL for your owner portal to ensure you have easy access each month.

The management fee is a percentage of rent collected that is charged every month that your home is actively rented. Typically 9% of one month rent, you will see the management fee on your owner statement each month that rent is received. Please refer to Clause 5 Paragraph I of your management agreement for your specific terms.

For repairs that were deemed to be over $500, you should receive an estimate from Richard Price in the Repairs Department. Upon receiving your approval, Richard will meet with Ann Orem, our Accounts Associate, to discuss payment of that estimate. Richard will contact you asking to send money so that we can pay the invoice within 30 days of receiving. When the work is completed and the invoice comes in, Ann processes it. The invoice will be attached to the accompanying work order. Once the invoice gets paid, a copy of the invoice will be in your owner’s packet on the owner’s portal. Ann pays the vendors every Friday. She will also pay the vendor on the 9^th of the month, right before you receive your owner payment on the 10^th. The reason for paying vendors every Friday is to maintain our policy with them and further ensure they keep our clients a high priority.

Certain charges only occur when your lease is renewed or we re-market the home. These will be classified as “Re-Leasing Commission” or “Commission” on your owner statement.

The Re-Leasing Fee (for renewals found on page 4 clause G of your management agreement pays for the monitoring and renegotiation of your existing lease. Under this fee we are negotiating not only to renew the contract, but we are pulling comparables for your home, making sure to see if you are at market value and working on your behalf to ensure the paperwork is signed and the tenants are secured for another year or longer.

Example of an Owner Statement

If your home went on the active rental market, an application accepted and a lease signed, you are charged the “Commission.” The commission is equal to 90% of one month’s rent or a full month’s rent if the lease is longer than two years. This fee is applied not only for the marketing, processing and lease creation but also a part of that commission is given to the procuring agent who brought in the tenant.

Miscellaneous charges that you may see during your time with us could include utilities charges and service charges if you have a lawn service or any other type of recurring service you have contracted.  At the end of the year your IRS Form – 1099 is prepared as well as a cash flow statement. The statement breaks down everything we have paid for on your behalf (repairs, etc.) as well as all income you have received. It is important that if you should have receipts from repairs that were not through McGrath Real Estate Services, Inc. or your total HOA/COA dues (which McGrath in most cases does not pay for) to make sure that you add these totals to your end of year tax filing because they will not be included in the 1099 and cash flow statement we send to you. If you ever have any questions regarding your owner statement, rental payments or your end of the year 1099 please contact our Accounting Department at Accounting@McGrathRealEstate.com