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VOL. 39 | NO. 47 | Friday, November 20, 2015

Why sell when you can rent it for $11K/month?

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Scott Abernathy of Reliant Realty in Murfreesboro held some 60 Realtors spellbound last week at a property management course offered by the Greater Nashville Association of Realtors, sharing knowledge and experience gleaned from his management of properties through the years, including 450 current properties.

In order to manage real estate property, the manager must have a real estate license, have the permission of the principal broker of the firm and carry addition errors and omissions insurance.

Additionally, there are a number of laws involved including the Landlord Tenant Act enacted in 1975. Property managers also must be able to pull credit information and abide by the Fair Credit Reporting Act.

Owners cannot discriminate against seven protected classes – race, color, religion, national origin, sex, disability and familial status. If the property manager is a Realtor, there are two other protected classes, sexual orientation and gender identity.

Homeowners Associations often govern condominiums and have strict bylaws, yet break laws by having, for example, a no-pet policy. If the association allows rental units, it may not restrict someone who has been told by a medical provider that he/she should have a pet for medical reasons. These medical pets are seen by the courts as medication.

If a pet-owning tenant meets all other standards, he must be admitted.

With post-traumatic stress disorder on the rise due to the veterans returning from battle, Abernathy says, there are more and more pets being prescribed by medical providers, even though the term “medical providers” can be broad.

Abernathy also suggests owners require a pet fee, not a pet deposit, so there is no argument when the person leaves. Also, a move-in fee, not a move-in deposit.

In closing, he says bed bugs here are not as bad as other areas, and the most popular breeding ground for them is – are you ready for this – movie theaters. They are dark and cool and the bugs love them.

Rental of the Week

The Italian villa located at 4303 Harding Place is Belle Meade is currently being marketed for sale and for rent with two different real estate firms.

Erica Taylor of Benchmark Realty has the 8,281-square-foot manse for sale for $2.55 million, while Tom Repass of Fridrich and Clark Realty has the home on Realtracs as a rental unit.

Having sold in 2012 for $1.2 million, the house has five bedrooms, five full baths and a half bath.

Repass is now one of the leading property managers in Area 2, which includes Belle Meade, West Meade, Green Hills, Bellevue, Hillsboro Village, 12South and all points between.

He had entered the real estate field after a wildly successful career as a clothier and was starting to realize the fruit of his labor when the Great Recession hit. As participation in the recession was not an option, Repass made the best of the situation and began to manage the properties that were not selling.

His calm demeanor and the organizational skills made him the perfect target for his fellow agents as properties began to languish on the market. Owners began to flee the area, leaving properties vacant and most having two options: foreclosure or rent the homes.

Repass amassed an enormous clientele and, when the market returned, homeowners showed their appreciation and had Tom sell the homes.

As investments go, most investors seek a certain cap, or capitalization rate. That rate is determined by dividing net operating income by market value.

In the not-so-distant past, 10 percent was the target, and 7 percent has become desirable. Some attorneys are quoting deals closing at 4 percent cap rates.

If 4303 Harding sold for $2.55 million and rented for $11,000, there would be a gross operating income of $132,000. With taxes of nearly $28,000 as a residence – those would increase if it were to be rented – and insurance possibly as high as $10,000, a property management fee of somewhere in the neighborhood of $13,200 and maintenance of perhaps $12,000, the rough estimate for the net operating of $68,800 or a cap rate of 2.7 percent. Without the expenses, the deal barely works.

However the current owner only has the $1.2 million plus the renovation. At an acquisition price – the repairs count, but we will leave them alone for now – the owner would have a 5.7 percent cap rate. The renovation was extensive, so it the financial decision would be close.

It is the consensus of residential and commercial real estate, as well as the attorneys that structure the transactions, that there are hundreds of millions of dollars flowing into the city from all over the world at this point.

Richard Courtney is a real estate broker with Christianson, Patterson, Courtney, and Associates and can be reached at richardcourtney.com.

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