5 Red Flags to Watch For When Hiring a Property Manager

5 Red Flags to Watch For When Hiring a Property Manager

by Ken Corsini on October 31, 2013 · 14 comments

Property Management

Last week I wrote an article about the basics of property management. I thought it would be good to expound a little more this week and discuss some of the characteristics I would consider red flags when interviewing property managers. These characteristics in and of themselves do not necessarily indicate that a property manager should be avoided, but should at least cause an investor to take pause.

1.) Bookkeeping and Statements

Most legitimate property managers have dedicated bookkeeping personnel. Property management may not seem very complicated, but I can assure you that many managers fall short in this area. I think that any property manager worth their weight will have a reputable software platform in place and dedicated bookkeeping staff. I’ve found that the property managers who try to “wing it” almost never have accurate accounting for their landlords and rarely provide monthly statements. As an investor, it’s critical that your books be in order …. choosing a property manager that sends timely statements and keeps accurate records is essential to this end.

2.) Unlicensed

Many states (including Georgia, where I live), require that a property management company have a licensed broker of record. It’s important to know the law in your state and make sure any property manager that you consider have the property licensing. Truthfully, regardless of what the law states, I would probably want any property manager I work with to have some sort of real estate licensing. Not only from a knowledge standpoint, but from an accountability standpoint. The licensing agency protects the consumer by providing a governing board that ensures licensees operate ethically and within the bounds of the law.

3.) Start-up/no References

I would be very cautious to work with a property manager that is just getting started out and/or has no references to provide. I’ve found that many individuals, especially real estate agents looking for additional sources of revenue, often jump into property management with no real business plan and little experience to help guide them in their endeavor. In the end, many start-up property managers find that the tedious nature of the business and the accounting demands do not provide the income originally projected (especially compared with the workload required). In the end, it’s the landlords that get stuck with sub par service and ultimately end up having to find a new property manager when the management company closes it’s doors.

4.) Super Low Fees

While many investors shop for property managers based solely on fee structure, I strongly advise against this. As an investor, property management is one of the most important components to the long term success of your rental property. Any property management company that is trying to undercut the average fee structure is in jeopardy of running an unprofitable business. While it may seem attractive to an investor at first, this scenario will almost always end up in one of two ways: 1) The quality of the record-keeping and overall management suffers 2) The business shuts down because it’s not profitable.

This actually happened in my market within the last year. One of the largest property management companies in Atlanta developed a model where they charged very low, flat-rate monthly management fees. For a while it appeared as though they were making up for this revenue by frequent and expensive maintenance and repair bills … but ultimately they ended up shutting their doors anyways. Hundreds of investors were told to go find another manager as they could no longer service their customers.

5.) Undefined Marketing Plan

Managing a property is really half of the equation. The other half is leasing. The last thing an investor wants is vacancy. If a property manager cannot rattle off at least three or more solid strategies for getting properties leased, I would be very skeptical of their ability to place tenants. A good property manager will know what it takes to put tenants in properties and will have multiple proven strategies for doing this (ie. MLS, signs, web advertising).

Property management is not rocket science, but there are good manager and there are bad ones. Any investor looking to hire a property manager should carefully consider if any of the aforementioned red flags exist and whether this may indicate potential problems.

When Should You Fire Your Property Manager?

When Should You Fire Your Property Manager?

by Ali Boone on December 14, 2013 · 16 comments

Fire Property Manager

As soon as you start wondering if you should! Okay maybe not always but if you are wondering at all, you should likely think about pulling the rug out.

For me though, the thought of needing to fire my property manager as soon as I even wonder if I should holds true. I can reverse that thought to illustrate my point actually. In thinking of my favorite property manager, if I ask myself if there is any reason I should get rid of him I actually panic for a second at even the ‘fake’ thought of losing him! That means he is that good and truly the idea of not having him managing my properties sends a chill down my spine.

It sounds far out, I’m sure, to think you could feel so comfortable with a manager but it really is possible. So bringing that reverse illustration back around to the original point of probably needing to fire a manager at the first wonder if you should, maybe you see the point I was getting at now.

Not only do I not wonder if my property manager is doing a good job, it actually terrifies me to think of losing him! So if you are at a point of thinking your manager isn’t doing a good (or proper) job, you are probably right and you should probably start shopping around for a new manager before he (or she) costs you a lot of money.

I know that paragraph is a bit vague and may not have helped you in breaking down and evaluating your manager and his/her performance, so I’ll help you. Here is what I consider to be ‘red flags’ with a property manager and if one or more of these is an issue, you may want to consider shopping for a new manager.

Red Flags to Watch For

  • Lack of Confidence. If you are at any point concerned about whether or not your property is proactively being taken care of, chances are you should jump ship from your current manager. The whole point of having a property manager is so you don’t have to worry. To be clear on this one though, you are allowed to worry about your property, especially if something is actually going on with it (tenant not paying, sudden repair needed, etc.).What you should not be worrying about is the ability of the manager to handle whatever is going on in the most cost-effective way possible. For instance, I have a problem tenant right now and while I’m extremely frustrated about the tenant and the situation, I have no doubt that my manager is handling the situation in the most time-effective and cost-effective way possible. I don’t wonder at all if he is doing everything he could be doing to fix it, I know he is. Whereas in the past I have had problems with some properties and it felt like absolutely nothing worthwhile was being done to fix the situation in a timely and cost-effective manner, I only knew about the problem because I saw it for myself on the internet (my property listed for rent when I had no idea my current tenants had left and stolen all the appliances!), and it felt like I could be doing more about it myself than my manager was (and I know nothing about handling that type of situation).I want to feel like if I were to go backpacking in the wilderness for a year and have no access to communication with my property manager that I would feel trusting and confident that my manager would make the most cost-effective decisions for me while I was gone and I would come back in a year with minimal negative impact. I’ve had some managers where I felt like if I were to leave for even a month that my property would crumble out from under me and I would owe thousands for no good apparent reason. If you are lacking the former confidence in a manager, get a new one.
  • Lack of Communication and Accessibility. Nothing stresses me out more than a manager who doesn’t communicate well. There are two pieces to what I consider to be successful communication: 1. they tell me when anything out of the ordinary happens and 2. they are easily accessible if I need them for anything.For me that means I don’t constantly talk to a secretary who never knows one thing from another either. I personally, and this is only preference not a rule, don’t like calling a big office and talking to different people all the time. I want one guy who is my manager, not a big group. I feel like I accomplish more in a more timely fashion and with fewer headaches that way. But as I mentioned in the bullet above, I literally saw one of my properties one time labeled as For Rent on the internet when I was bored one night looking at Zillow values of my properties. When I inquired with the property management company about it (which took multiple phone calls and messages to finally get someone on the phone), apparently my tenants had left a month prior and stolen all the appliances. No one cared to inform me of that.Seriously?I had another property where on multiple occasions I wasn’t told that my tenants had stopped paying and the only way I found out was after receiving less than ¼ of what I should have in a payout one month, I called the company to ask what was up.  The lack of communication is the biggest contributor, in my opinion, to developing a lack of confidence and trust for the manager. I don’t want or need to micromanage a manager at all (why even pay him if I do that?), but knowing basic levels of information should still be part of the relationship.
  • Nickel-and-Diming. This one isn’t necessarily completely wrong by itself but it’s certainly annoying and to me it’s a sign of low quality, which is likely to result in a poor management experience.I pay more than the standard for my current property manager, but I also get a lot of freebies out of that and way fewer headaches. I get minimal repair bills during the year, minimal everything bills. To me, that is a lot nicer than paying less per month and getting hit hard by bills left and right. Some of the things I’ve seen managers charge for is asinine, really. Plus, when you are getting nickel-and-dimed, I think it instills a lack of trust in what the manager is doing. Because in that scenario essentially he (or she) profits every time something goes wrong.So why not continue to ‘have things go wrong’ to make more money? It’s a famous problem with property managers- they make up repairs and other issues simply so they can make more money off of you by ‘fixing’ the problems.  If you are a long-distance owner, how would you know otherwise that the repair isn’t legit? You can’t. The other model, the one where you don’t get charged left and right, is great because I have a trust that when my manager tells me something is wrong with the house, it is legitimately an issue. Why? Because his labor is free to go check it out.I get charged so little to fix repairs, if anything, how could I distrust it? The houses are in great shape, it’s not like he is ignoring problems, so it helps me trust the system and I know he cares and isn’t just sucking out every penny he can from me. It’s all part of the bigger picture.

You’re the Boss

Remember, when you hire a property manager to run your investment properties it is no different than if you were to hire an employee to work for you. You are the boss, not them. I don’t say that to suggest you can be a jerk and yank them around, but I do say that to encourage you to remember that if something isn’t working for you, you can do something about it.

I am in 100% disagreement of any property management contract that states you have to stick with that manager (or company) for a defined amount of time. Absolutely not! Because what if they really start to suck? A property manager sucking can cost you a fortune. No joke. With that much at risk, I’m not signing anything that says I’m stuck with someone. I need to be able to fire a manager. I’m the boss, I decide who runs my properties and when. If someone isn’t cutting it, cut them loose as soon as possible!

I can’t give you an exact tally of how much money I’ve lost on my properties in only two years due to bad property managers, but I can tell you for sure it is easily in the thousands. And the higher thousands at that, not just one or two thousand.

You run the show, it’s your investment, and they are your properties. Yes, I absolutely agree good managers are insanely frustrating to find but they do exist. Don’t give up! Hire and fire as much as you need to. You will eventually get to the good one who will help you make a boatload of money.

55+ Housing Market Confidence Is Breaking Records

55+ Housing Market Confidence Is Breaking Records
The nationwide financial and economic challenges in recent years have upended millions of consumers’ retirement plans, and dreams of transitioning into a new or smaller dwellings to age in place. So the recent news from the National Association of Home Builders was well received. Builder confidence in the 55+ housing market continued to show improvement in the third quarter of 2013, representing the highest third-quarter number …Read More >

Home Buyers Are Scarce, So Renters Take Their Place

Home Buyers Are Scarce, So Renters Take Their Place

Kendrick Brinson for The New York Times

Ramika Archibald owns a home near Atlanta. She is the president of the homeowners’ association in her subdivision.

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By 
Published: December 4, 2013

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ATLANTA — Homeownership was out of reach for Tishri Hyman, a single mother of two with a good job but less than stellar credit. But three years ago, she found the next best thing: a brand new house, complete with a fireplace, that she could rent.

The New York Times

 

“It was just absolutely magnificent to be able to live in a new home,” she said. “It gave me a sense of independence. It provided something for me that was probably missing.”

Ms. Hyman and her daughters moved into what had been a model home in one of the many boom-time subdivisions around Atlanta that were originally intended for first-time buyers. But now thousands of similar single-family homes are being built for tenants, rather than owners.

Around Atlanta, new five-bedroom, three-bath homes that once might have sold for a little less than $200,000 are now on offer for monthly rents of $1,300 — granite countertops and walk-in pantries included.

Building homes to lease, rather than sell, has begun to make sense to home builders and investors because the pool of qualified first-time home buyers has shrunk even as the price of buying existing homes has risen enough to make new construction worthwhile again.

According to census figures, the percentage of homes built specifically as rentals is still relatively small, at 6.2 percent in 2012. But that represents a record high.

These houses are going up in the same neighborhoods that catered to first-time home buyers before the housing market crashed five years ago. But such buyers are scarcer because of lower wages and higher unemployment, particularly among young adults, who often are forced to live with their parents or share an apartment with roommates. By one estimate, there are 2.4 million fewer new households now than there would have been under more normal conditions.

At the same time, tougher standards for home mortgages have kept other potential buyers out of the market, making rentals of single-family houses look like a better alternative.

Despite the obstacles for some buyers, sales of new homes climbed 25.4 percent in October, to a seasonally adjusted annual rate of 444,000, the Commerce Department reported Wednesday. But people turn to rental homes for a variety of reasons.

In Jacksonville, Fla., Viviana Bowens, a nurse, lived in a spacious custom-built home, every light fixture and paint color carefully selected, until her husband left her and she could no longer cover the payments. Because the home was worth little more than half what the couple paid, she could not sell it and it went into foreclosure. When she looked for a new place for herself and her three children, she was surprised to find a brand new, four-bedroom house built by JWB Real Estate Capital, a local real estate investment firm.

“To have to uproot them I was like, oh my God,” she said. “So to get to live in a new place was a relief.” Ms. Bowens said she would eventually like to buy again, when her credit history is repaired.

“If I can afford an $1,100 rent, I can definitely afford a home,” she said. “So it’s just the fact that, who’s going to give me a loan with that history?”

JWB is emblematic of the small companies that are at the forefront of the build-to-rent trend.

“We buy a lot of houses, and I had people coming to me with these lots that they were trying to sell for five grand,” said Alex Sifakis, the president of JWB, who has since given talks on the subject at industry conferences. “I would keep turning them away, and one day I was like, hey, I wonder what it costs to buy a whole new house?”

His company has since built about 100 homes and plans 125 more.

Bruce McNeilage, the managing partner of Kinloch Partners, a Nashville-based real estate investment company that is active in the Atlanta area, said he initially scooped up model homes like the one he leased to Ms. Hyman.

“A year or two ago, I could buy a brand-new home, never been lived in, and I could buy it for half of what it cost me to build,” he said. “The problem is now all those houses are gone.”

But new homes still command a premium with renters, especially in places like Atlanta, where long commutes make it preferable for workers to rent so they can move when they change jobs.

“There’s no repairs, lower maintenance, it looks great to the tenants, you can get maximum rents, and people are going to stay in them for a while because they’re brand-new,” Mr. McNeilage said. He now plans to build 20 to 30 houses a year.

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A version of this article appears in print on December 5, 2013, on page B1 of the New York edition with the headline: New, but Not for Sale.

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Five Reasons Why You Need to Close on a Home By the End of the Year

Five Reasons Why You Need to Close on a Home By the End of the Year

by On November 25, 2013

woman hands holding paper house

If you are debating on whether you should make an offer on a new home before the New Year, now is the time to stop deliberating and submit your bid. Between 2013 tax benefits, and avoiding mortgage rate roulette and changing lending rules, closing before the end of the year can offer significant financial benefits. Top mortgage and real estate experts share five ways you will benefit if you buy a home by December 31, 2013.

1.) Avoid rising rates roulette: Mortgage interest rates, while still attractive, are up 1 to 2 percent over this time last year. It’s possible to lock in a 30-year fixed rate mortgage at about 4.5 percent, says Shari Cashman (Gencor Mortgage). According to the Mortgage Bankers Association’s forecast, mortgage rates will likely rise to about 5 percent in 2014. If you buy now and the rates drop, you can always refinance. If you wait and the rates rise, you are stuck, says Todd Huettner (Huettner Capital).

2.) New Year, new lending rule: Lending rules will change on January 1, 2014 and it could be harder to get a loan. 2014’s rules will allow you to borrow less, at your same level of income, says Huettner. 2013’s current mortgage rules allow for a 45% total debt to income ratio (DTI); in 2014, the DTI will go down to 43%. What does this mean? You need to make or reduce your debt in order to buy the same house!*

3.) Easier financing: If you are waiting for home prices to decrease, don’t. 2014’s mortgage changes could make it harder to get financing, says Robert J. Spinosa (RPM Mortgage). So if you are looking to save a few dollars by waiting for home prices to drop, you could miss your window to secure a mortgage entirely.

4.) Lower sales could mean higher inventory: It’s an after Christmas sale before Christmas! While 2013’s housing theme was limited inventory and higher prices, historically, the fourth quarter of the year usually slows down the housing market and this year is no exception, says Greg Cook (First Time Buyers Network). Housing sales have been declining since September so inventory has increased. According to the National Association of Realtors®, existing-home sales declined for the second consecutive month in October, while constrained inventory means home prices continue to see double-digit year-over-year gains. You may get the deal of December!

5.) Maximize tax deductions: It’s important to remember that if you buy before the end of the year, you can begin deducting interest and building equity immediately, says Cashman. Some closing costs and points are tax deductible in the year you buy a home. Buying now allows you to include them on your 2013 tax return. If you buy even one week later in January, you have to wait a year for your 2014 return to take the deduction, says Huettner.

*If you decide to buy in 2014 and need to lower your DTI, Huettner recommends the below tips:

  • Make more or owe less. If you do not project your income to increase, paying down debt is the easiest and fastest way to lower your debt to income.
  • Paying off your car loan is one of the best ways to lower your DTI, because it is a short loan with higher payments compared to student loans, home loans, or even credit cards.
  • Consolidate debt into a home loan or other loan resulting in a lower payment

The best and safest way to lower your DTI is to simply make sure the lender is calculating your income and debt correctly. Work with an experienced lender, and work together to answer the below questions:

DTI3

Skyrocketing rents hit ‘crisis’ levels

Skyrocketing rents hit ‘crisis’ levels

 

Diana Olick         CNBC

Dec. 9, 2013 at 5:04 PM ET

Rents are skyrocketing as vacancies drop and more people are living in rental housing. 

FRED PROUSER / Reuters
Rents are skyrocketing as vacancies drop and more people are living in rental housing.

Since the housing crisis began in 2008, approximately 4.6 million homes were lost to foreclosure, according to CoreLogic. The vast majority of those homeowners became renters. Even as housing recovered, credit tightened, pushing even more potential buyers out of homeownership and into rentals, both apartments and single-family rental homes.

There are now 43 million renter households, or 35 percent of all U.S. households, the highest rate in more than a decade for all age groups, according to Harvard’s Joint Center for Housing Studies. That’s 4 million more renters today than there were in 2007. For those aged 25 to 54, rental rates are the highest since the center began record keeping in the early 1970s.

As a result, rental vacancies have fallen dramatically and rents have skyrocketed.

“We are in the midst of the worst rental affordability crisis that this country has known,” said Shaun Donovan, U.S. Secretary of Housing and Urban Development.

Half of all U.S. renters today pay more than 30 percent of their incomes on rent. That’s up from 18 percent a decade ago, according to the Harvard center. For those in the lowest income brackets, the jump is even worse.

“Over four years, a 43 percent increase in the number of Americans with worst-case housing needs,” said Donovan. “Let’s be clear what that means, they’re paying more than half of every dollar they earn for housing.”

The numbers are not lost on Annie Eccles, who is in her late 20s. She has been renting for more than two years, and the rent on her Bethesda, Md., apartment has increased by the maximum the county allows every year.

“It’s frustrating because we pay for rent, we also pay for parking, and just knowing that every June it’s going to increase significantly, it’s frustrating,” said Eccles.

And Eccles pays almost as much each month on student loan debt as she does in rent. Put together, it makes it very hard for her and her husband to save up enough to buy a home of their own.

“It would be hard buying in this area, just because it’s so expensive,” she added.

Most younger Americans, like Eccles, want to be homeowners someday. While so-called millennials favor mobility and city living, they still see homeownership as a goal.

“Nineteen out of 20 people that are surveyed say that they intend to buy a home at some point in the future, if they’re under the age of 30,” said Eric Belsky, director of Harvard’s Joint Center for Housing Studies. “There is no question that the will toward homeownership remains there, it’s the way.”

Home prices are rising faster than expected, due to heavy investor demand, ironically in single-family rental housing. While more than 3 million owner-occupied homes are now investor-owned rentals, there is still a lack of supply in the market. New rental stock is coming soon, but demand is not easing. Renters may want to be buyers, but many still can’t, due to rising home prices and mortgage rates.

“You add in other things, like higher student debt for many people, you add in the fact that incomes for low- and moderate-income people have not been going up as fast as inflation, and you have a situation where it’s going to be very difficult to buy homes,” said Belsky.

By CNBC’s Diana Olick. Follow her on Twitter @Diana_Olick.

Related stories:

Rising mortgage rates a boon to smaller lenders

Soaring new home sales: Not what they seem

October new home sales strongest in more than 33 years

© 2013 CNBC LLC. All Rights Reserved

Los Angeles sues Wells Fargo and Citigroup

ICYMI: Los Angeles sues Wells Fargo and Citigroup, says mortgage discrimination led to foreclosures

gavelEach week we bring you the top headlines related to buying, selling, or investing in Santa Clara County real estate. Please feel free to comment and share!

Californian Sentenced to 10 Months in Foreclosure Scam NationalMortgageProfessional.com Christy Romero, Special Inspector General for the Troubled Asset Relief Program (SIGTARP), and Melinda Haag, United States Attorney for the Northern District of California, announced that Walter Bruce Harrell of Montara, Calif., was sentenced to 10 months in federal prison and three years of supervised release for bankruptcy fraud and for providing false statements in a bankruptcy proceeding. Read more.

Los Angeles sues Wells Fargo and Citigroup, says mortgage discrimination led to foreclosures TheRepublic.com LOS ANGELES — The Los Angeles city attorney sued Wells Fargo and Citigroup on Thursday, alleging the companies engaged in mortgage discrimination that led to a wave of foreclosures in minority communities during the housing crash. Read more.

Are foreclosure laws to blame for patchy US price gains? TheRealDeal.com Why have many of the local housing markets that were hit hardest during the bust — especially in California — bounced back so vigorously and quickly, with prices close to or exceeding where they were in 2005 and 2006? Read more.

High End Foreclosures are getting their due OCHousingNews.com High-end properties were once immune to foreclosures. These loanowners had little fear, compared to a loanowner in the Inland Empire that had a much greater chance of a foreclosure action by the bank. This recent change in bank foreclosure policy is an indication of confidence by the banks that the cloud inventory is now completely under control, at least for the time being. Read more.

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10 Skills Great Entrepreneurs Need

10 Skills Great Entrepreneurs Need

Posted: 28 Nov 2013 09:42 PM PST

Image credit: http://under30ceo.com Becoming a successful entrepreneur involves a lot of factors like taking risks and moving past disappointment. Here are 10 qualities that shape effective business builders. 1. Resiliency Striking it out on your own and raising capital for a new untried venture involves a healthy degree of risk. And risk means that things can […] The post 10 Skills Great…
Visit http://Entrepreneur-Inspiration.com to read the rest of this article

How To Prepare For A Winter Storm

How To Prepare For A Winter Storm

Posted: 02 Dec 2013 11:29 AM PST

With one winter storm already recorded in the books; there’s no doubt that it’s getting cold. Today in the desert southwest it’s a balmy 27 degrees. Even a sub-tropical paradise is no longer immune to the effects of a winter storm. In a typical season, winter storms can wreak havoc, causing billions of dollars in damages. While not every region in the U.S. will bear the brunt of a major winter storm, we’re all vulnerable to freezing temperatures, brutal, hurricane force winds, and freak blizzards.

If your region typically sees a storm or two during the winter (think Midwest) you’re probably already doing most of the prep tips listed below. It’s much more difficult to prepare for a potentially catastrophic storm when you’re in a region in the U.S. not typically affected. Regardless of where your properties are located, the following advice can help you to be prepared – just in case that big storm makes a bid for your vicinity.

  • Check and maintain an adequate supply of snow and ice removal tools. This includes salt or sand for melting ice, snow shovels, and possibly a snow blower to remove large amounts of snow.
  • In case of a power or gas outage, you should be prepared with flashlights, bottled water, and blankets as well.
  • Keep an extra stockpile of those supplies in case a tenant needs them. A warm blanket can go a long way toward making a miserable night a little bit better.
  • Check your properties for loose or low-hanging tree branches. Gusty winds or ice build-up can cause loose branches to fall, presenting a hazard to both tenants and employees.
  • Keep an eye out for loose roof tiles or faulty furnaces. While this should be a part of your annual winter inspection, it’s imperative that these items continue to function property throughout the winter months. Heavy snow build up can quickly lead to damaging leaks in a unit, and you certainly don’t want a furnace to stop working during a winter storm.
  • Make sure that tenants have removed any potential hazardous items from their patio or balcony. A chair can quickly become airborne in 40 mph winds, creating a potential hazard to those in the area.
  • Stay on top of the situation. With 24-hour weather available via television and the Internet, it’s easily than ever to track storms and their potential to hit your properties.

While nothing can prevent a winter storm from hitting your area, being prepared can go a long way toward lessening the impact of the storm, and returning to business as usual, sooner rather than later.

Permits To Build Apartments Hits 5-Year High

Posted: 02 Dec 2013 11:08 AM PST

U.S. developers received approval in October to build apartments at the fastest pace in five years which could lead to economic growth. According to the Commerce Department, permits to build houses and apartments were approved at a seasonally adjusted annual rate of 1.034 million. This is the fastest rate since June 2008. The majority of the increase was for multifamily homes.

Read More http://finance-commerce.com/2013/11/rentals-push-u-s-home-permits-to-5-year-high/