Introducing Fifth Street Investments, Inc.

Over the last few years, real estate investors have done quite well.  Both home prices and rents have increased considerably, so if you have owned a home over this time, whether it has been your primary residence, a rental, or both, you’ve seen your net worth improve. And the more houses you own, the better….because they’ve all likely gone up in value.  If you do own a home that you aren’t actively living in, it’s likely that there is a tenant renting the home from you. And having a tenant living in a home that you own can be nerve-wracking. I know landlords who stay up at night worrying about the following questions: Will the tenant pay their rent on time? Will they cause major damage to your beautiful home? Will they bombard you with phone calls, texts and emails demanding small repairs be done? And what happens if you decide you need to evict the tenant – either for failure to pay or a different lease violation? ... How do you go about doing that? Another tricky thing about having a rental property is maintaining it properly. Lawns need to be watered and mowed. Pools need to be cleaned and have their chemistry checked. HVAC systems and refrigerators need their filters changed every few months. Showers and sinks need to be caulked to prevent water penetration. And repairs need to be done as systems in the home wear out over time. A landlord also needs to keep up on all of the various rental laws that have recently been passed…as well as the exceptions to these laws. For example, in the state of California, a landlord cannot raise a tenant’s rent more than 5% per year (plus that year’s consumer price index number). However, this law only applies to landlords that hold the rental property in a corporation or an LLC.  Essentially, “mom and pop” landlords are exempt. But…in order to legally use your exemption, you must have given notice in writing to the tenant that you are exempt from this law. If you haven’t done that, then you can’t legally increase the rent more than the 5% + CPI. Also, in California, a law was recently passed which limits the security deposit to the equivalent of 1 month’s rent. But, this law only applies to landlords who own more than 2 rental properties. If you own 2 or fewer rentals, then you are still allowed to charge the equivalent of 2 month’s rent. And, did you know that a law was recently passed in Los Angeles that states that landlords cannot legally require a tenant to move out when the lease term is up?  In L.A. you must allow a tenant to continue to rent your home until that tenant voluntarily chooses to leave. If you are able to get an exception made (because you are going to move back into the home or do a major remodel on it), you then are obligated to pay the tenant relocation assistance, which can cost you more than $25,000! Because being a landlord can be very difficult and has so many moving parts, I created a property management company and brokerage called Fifth Street Investments, Inc.  For a very reasonable monthly fee, I will market your home to find you a great tenant. I’ll conduct credit, background and eviction checks as well as analyze the prospective tenant’s finances to make sure they can pay the monthly rent. I will arrange for all of the regular maintenance to be done on the home and dispatch competent, reasonably priced contractors when repairs are needed.  I’ll check on the home regularly to make sure that the tenant is taking proper care of it. And I’ll keep up on the all the new laws and make sure that you and your home are in compliance with them. I’ll also manage the move-in/move-out process each time your home is re-rented…taking care of everything from paint touch-up to cleaning to checking that smoke and carbon monoxide detectors are installed where they should be. Finally, I do regular consultations with my clients to determine whether the rental market has gone up and whether it makes sense to increase the rent. Because your rental property is a part of your investment portfolio, I believe it makes sense to maximize your investment by making certain that you aren’t lagging behind the market with the monthly rent amount that you’re collecting. If you currently own a rental property and would like to learn more about how I can manage that property for you…or if you are interested in becoming a real estate investor, please call or text me at (805) 660-9459 or email me at darren@humphreyteam.com.

NAR Settlement

Real estate has been in the news lately, due to recent changes put into place by the National Association of Realtors.  These changes are the result of a class-action lawsuit which essentially made the case that home sellers shouldn’t be required to pay compensation to a buyer’s Realtor when selling their home.  As you probably know, in a typical home sale, the Realtor compensation has been paid entirely by the seller, and it has been split (sometimes 50/50 and sometimes differently) between the Realtor representing the seller and the Realtor representing the buyer.  The amount of the buyer’s agent compensation has been posted in the MLS (Multiple Listing Service), typically as a percentage of the price of the home.  So when a Realtor shows a home to a client and prepares an offer on said home, they know how much compensation they will earn if and when that sale consummates.  Effectively, the new changes that have been put into place by the National Association Realtors are as follows:  1. While a seller still may choose to offer compensation to the buyer’s Realtor, the amount of this compensation may not be posted in the MLS.  2. A Realtor must have an agreement signed by a buyer prior to showing that buyer a home or homes.  This agreement will indicate the compensation amount that the Realtor and the buyer have agreed upon to represent that buyer on the purchase of a home.  If the seller of the home that the buyer purchases is offering a buyer’s agent compensation that is equal to or higher than the amount that the buyer and buyer’s agent had previously agreed upon, then the buyer will not have to pay their Realtor out of pocket.  But if the seller is not offering a compensation to a buyer’s agent, or if that compensation amount is less than the buyer and their agent had agreed upon, then the buyer will have to pay the compensation, or a portion of the compensation, out of pocket.  There has been a lot of speculation about how these changes might affect home buying and selling moving forward.  Will home prices drop?  Will Realtors become obsolete?  Will home buyers start making offers and buying homes without the services of a buyer’s agent?  When considering these questions, I think it is important to remember that real estate commissions have always been negotiable.  It has always been a home seller’s option to offer little or no commission to a buyer’s agent.  But because most people don’t buy a home regularly and don’t understand the intricacies of the process, a typical home buyer wants a professional on their side to look after their best interests, help with negotiations, and make sure they are protected throughout the process.  And, in my experience, home sellers have understood that because the vast majority of buyers are likely to have an agent assisting them, it makes sense to offer a buyer’s agent compensation to incentivize these agents to help sell their home.  When the seller is offering a compensation to the buyer’s agent, this frees the buyer up to make an offer on the home without worrying about holding money back to pay their agent.  Although we are entering uncharted territory as these changes go in to effect, I personally don’t believe that they are going to dramatically impact home values or even the real estate process in general.  I think it is in the home seller’s best interest to continue to offer a buyer’s agent compensation, and I think that most sellers will understand this.  And should a seller choose not to offer a buyer’s agent compensation, buyers will likely offer less money on that home because they’ll have to pay their agent on top of the price of purchasing the home.  If you have any questions about these real estate changes, or if you’d like to discuss any other real estate matters, please contact me at (805) 660-9459 or darren@humphreyteam.com.