Business Model
Anshita Daniel • November 15, 2018
Owning residential spaces and offering them for rent, i.e. the profession of landlord, is obviously a business. However it is a business that comes in all shapes and sizes. This is at its most fundamental an investment in real estate for profit.
One difference is whether it is a smaller closely held business or a large corporate owned affair. This can determine what kind of relationship you have with “management”. Are you dealing with a lower level employee who is the ‘property manager’ or do you routinely deal with the owner? Depending on what is important to you this may or may not matter.
The second, and more important difference, is what business model has been adopted by the owner. In theory, over time, real estate increases in value. This is called appreciation. The difference between the cost of the real estate when built or purchased and the appreciation achieved when sold is a profit.
Some landlord models try to generate income and an annual profit for the owner. Other models are based on a longer view, waiting for when it is time to sell and the profit from the appreciation to be realized . The first pushes rents harder than the second. It can also mean a difference in the level of service and maintenance.
At RDI.properties we own all of the properties we manage. Even more importantly, we have built the business from the ground up. Over the years almost all of the properties we have actually physically worked on building or rehabbing. The product and the service we provide is important to us. We do not seek to make yearly profits from our properties. We take the longer view that real estate investment is for the appreciation to be achieved in the future. Thus we strive to annually set our rents at a breakeven price.
We have a diversity of properties - single homes, town houses, apartments, lofts. We are blessed by having them all concentrated in 6 and a half blocks. Our office is located in the center of all the properties. Next to our office is a larger commercial building we own. We have long thought that some portion of this last building could be part of our package of amenities. After doing a lot of research and reading a lot of articles on ‘ the current trends’ in rental housing, we created a series of questions for our tenants. Last spring we sent a series of surveys out to our tenants asking them what they wanted – a bike repair area, a dog washing station, a meeting center, a rec room, a fitness center. Of course every one of these had attracted some interest. However, the one with the overwhelming number of votes was a fitness center. With that, we tried to bore down on just what a fitness center meant. We got several clear things that tenants did not want – no mirrors on the wall, no television sets and no large weights; we had a lot of comments about not wanting “grunters” in their fitness center. With this detailed feedback we decided to focus on creating a tenant fitness center. It is restricted to tenants only who are over 18 years of age. It is focused on being a fitness center and not a weight room. It will be open 24 hours a day seven days a week. While not staffed, it is secured and monitored with six video cameras. Based upon tenant survey responses it will have:
Luxury Apartment is one of that often wild, over-the-top, exaggerations. The definition of luxury is “the state of great comfort and extravagant living.” Most apartments do not meet the standard of “ extravagant living”. Your first clue should be if there is a 24/7 doorman on the front door, entry door pulls that are oversized well-polished brass, inlaid marble in the floor of the entry foyer and a fresh bouquet of cut flowers in the front entry – If these are not there, living will not get more ‘ extravagant ’ when you get to the apartment. There are NO LUXURY apartments in Champaign-Urbana. There are some good ones, some well-designed ones and even some very nice ones but there are no truly luxury apartments. Be wary of landlords with exaggerated claims such as “luxury apartment”. You need to get beyond the hype to be happy over the long term. Using such terms as Luxury is another way of saying expect to pay TOP OF THE MARKET rents. A few suggestions: Is there a location you want to be close to: work, amenities, shopping – how close? Walking or biking distance? Once it is driving distance location is less important. Is being near bus routes important? What is and what is not included in the rent? Utilities, high speed internet, gym, parking etc.? What does it all add up to? When totaled can you afford it. Do the entry and common hallways look clean and well kept? Are there any reviews – Goggle etc. on the building and/or landlord that will tell you something about maintenance, landlord relations, and noise? Generally does it appear well cared for? As in do they care about the property or just getting the rents?
We have always been pet friendly. At first we were a bit too friendly. We once had a telephone call from a tenant, "I can't find my 5 feet long python Boris. I just fed with and he must have drawled somewhere to hibernate. I know I am moving in two weeks but do not worry when he comes out just ask the new tenants to call and I will get him." We made it clear how that was unacceptable and Boris was found asleep in a closet. Since then we have developed a written lease amendment and an annual pet fee system. We tend to shy away from exotics like snakes, ferrets, pigs and large birds. We also discourage aggressive or territorial dogs. Pets are a plus for owners but we are also careful about extra cleaning as allergies are on the rise in the U.S. We try to balance between responsible pet owners and tenants with allergies. We require extra cleaning by departing pet owners for this reason. We also provide and maintain dog waste stations on our properties. Our single family residences have fenced yards. Dog owners especially appreciate these yards. One of the benefits of pet ownership is that it can lead to a more active lifestyle. According to TIME Health, daily runs or walks with a dog can help decrease blood pressure and lower the risk of heart disease. Choosing building locations that promote walkability is a key strategy to get the most out of the active lifestyle pets can bring. In addition to keeping residents active, pets provide well-known psychological benefits. Americans' beloved four-legged companions are increasingly taking on the role of service animal based on their ability to provide emotional support and improve their owners' mental health. We already have had tenants with support animals; both cats and dogs.
We are and always have been pet friendly. But because of occasional property damage and the increasing number of incoming tenants with allergies we have honed our pet policy. Now to have a pet there is a form that must be filled out. The pet must be approved and there is an annual fee. We have tried to strike a balance. Tenants vary; some are pet lovers and some are not. We have a variety of pets in our rentals that range from dogs, cats, rabbits to sugar gliders. We require of departing tenants with pets, a higher leave of cleaning to lessen problems for new tenants with allergies. We have a special HEPA vacuum available for such occasions if needed. We have installed a dog waste station along the public sidewalk for our Hickory and Quarters tenants to use. We have also installed two special containers in the neighborhood where our rental homes are for dog waste. Our written policies specifically address service and support animals. We have had tenants in the past with both. We have tried and believe we have, struck a good community balance between pet owning and non-pet owning tenants.
RDI.properties offers apartments and single family homes both in and adjacent to Downtown Champaign. The dominant employer in our community is the University of Illinois. Thus we keep our leases set approximately to the University's year - (August - July). Our tenants are a diverse group of professionals and educators. They often come from many foreign countries as well as the U.S. We work hard to create a good lifestyle environment for active professionals. A new tenant and new professor at the U of I recently sent us this note regarding one of our downtown properties: "I absolutely love the building and the sense of community here at The Quarters."
Building codes have changed rapidly over the last ten years. Relating to taller apartment buildings like The Quarters at 11 E Columbia Avenue Champaign there is a demarcation between "low rise" and "high rise" buildings. That is 75 feet. The Quarters is a "low rise" being 74' 11" tall. Structural requirements in current building codes limits wood construction to four floors. Fire ratings require parking area to have a 2 hour fire rating. Put these together and you often get a combination of steel on the first floor and wood construction above. This is how The Quarters was built when it went up in 2014.
We use our web site rdi.proporties to provide lots of information to our tenants. Over the years we have discovered that there are a number of things that renters do not know about the physical plant of the place they are renting. GFI's are one of those things. Thus on our web site we include the following: Kitchen or bathroom lights and power out? Likely the GFCI has tripped. A GFCI outlet (GFCI stands for Ground Fault Circuit Interrupt) is a special electrical outlet device that provides much greater protection from electrical shock than a standard electrical outlet does. A GFCI monitors the amount of current flowing from hot to neutral. If there is any imbalance, it trips the circuit. It is able to sense a mismatch as small as 4 or 5 milliamps, and it can react as quickly as one-thirtieth of a second. It is now code that all electrical outlets within six feet of a water source must be GFCI. Think bathrooms and kitchens. To locate the outlet with the tripped GFI, look for the one with a small button popped out. Remember, when a GFI trips, it will trip any and all outlets connected to that GFI. Most kitchen and bathrooms in new homes have multiple (visible) GFI outlets, so it shouldn’t be too hard to find the GFI that’s tripped in one of these rooms. Once you have located the outlet with the tripped GFI, simply push the button back into place. You should hear a small click.
The Champaign - Urbana market is dominated by the University of Illinois with its 46,000 students and 13,900 employees. For this reason our leases run with the U of I calendar August through July. Our typical tenant mix is made up of working professionals, professors, researchers, post docs and graduate students. As you can see, many of these are University affiliated. We are pleased, that once again, we are fully leased through July of 2019. We will be again advertising our properties available for the 2019-2020 rental season starting in January of 2019. At that time we will have a variety of single family homes, apartments, lofts and flats available in and adjacent to Downtown Champaign. The above is our The Hickory building anchored by Complete Care Pharmacy an the home of The Hickory Street Apartments.
We offer both downtown apartments and homes in the neighborhood directly adjacent to downtown. The difference is with the first downtown is just outside your front door. While it is a five minute stroll to downtown from the picket fences and tree lined streets where our homes are located. One is still left.
We have a wide range of offerings from expensive luxury lofts, condos and apartments and restored large Victorian homes to smaller 'worker cottages'. It is important to offer, what is called, "work force" housing. Most often this has to be well rehabbed older properties with good bones. We have a number of duplexes, flats and smaller single family homes that are more in reach of a hard earned income of an hourly worker. This is 801 N Randolph Champaign. it is a two flat one up and one down. Both units are under $800.