New Lead Piant Hazard legislation will go into effect here on July 1st. Here is an update from Mary D'Alessandro, President NYSC (the local property owner's coalition). The details of the rollout of this new regulatory action are still unclear, as updates come in I will attempt to put them here on the blog. You may also check the City of Rochester website for updates at http://www.ci.rochester.ny.us/.

Good morning,
I have had several e-mails asking if I'm still alive because you have not heard from me. Well, I'm alive but working very hard. I have some updates for you.
The meeting in Albany: We had a very good showing of members. The City was there and the CPLP.
We all had an opportunity to speak and I must say out of everyone speaking we really knew the EPA standards and put forth a very good case.
Unfortunately the Code Council did vote that this was out of their jurisdiction and could not approve or disapprove of the legislation. The result, we have the legislation going into effect on July 1st, 2006.
Good news:
We have been able to get two amendments to the legislation. We refer to these amendments as the Mary-Lee Amendments. Lee Houstin and myself worked very hard to educate the City on the ridiculousness of these two areas of the code and why the code needed to be changed. The next time you see Lee Houstin be sure to thank her.
The first amendment changed the requirement of a dust wipe on an exterrior porch floor. The legislation was orginally written with the requirement of a dust wipe on exterrior porch floors. This clearly does not follow the EPA standards, EPA does not have a standard for exterrior porch floors.
That wold be same as dust wiping the street. As you can see City Council was fed some real unscientific data. Fortunately, we were able to correct this with scientific data. Enclosed porches are considered a room and enclosed porches can be dustwiped.
The second amendment changed the need for a risk assesor to identify all lead based paint in a unit after a city inspector cited violations. This clearly was of no use. To cite all lead based paint in a unit at a cost of $450.00 per unit was an warranted expense. The city inspector cited the hazards, the need for another inspection was not needed. Also, a risk assessor could not just come into a unit and identify all lead based paint and not cite hazards. Risk Assessors are certified and must follow standards set before them to obtain and keep their liciences. Again, as we educated the City administration we were able to encourage City Council to amend the legislation.
I contiue to work very hard with the City and County. I have attended several meetings with the city and just attended the Advisory Meeting that reports back to the Mayor. I need to report that I was very dissappointed that I was the only housing provider present BUT I am confident that will not happen again. I sat at a table with most members of non-profit agencies and the CPLP. I was allowed to express the devasting effects this legislation will have on our community and to correct individuals when they cited incorrect data. I have submitted a list to the City of those that should be in attendance at these meetings (housing providers, realtors, DSS and the Health Department and an expert risk assessor that knows the standards, hopefully the health department will fill that need).
NYSC was asked to partner with the Health Department in getting out information on the new State Pesticide Law. Soon, you will receive a letter from Dr. Doniger and the NYSC explaining the protocol that is needed when spreading pesticides on your lawns. Also, NYSC has been asked to partner with the county on a new Lead Hazard Control Grant. Of course we agreed, we are not sure if HUD will approve of this grant so don't get too excited until it is approved. We have come along in the last year. We are truely working hand and hand with our community and they realize just how important we are to the vitality of our City.

We have had other accomplishments in our legal battles and I will obtain a qualified report on those and forward within the next week.

I continue to work hand in hand with City Administration to change errors in
the legislation. Hopefully, as they become educated in the standards and
realize the ramifications of some of the code requiredments they will be
open to more amendments. We can only educate and inform with the hope of
change. I will keep you posted as we move along.
Mary D'Alessandro, President
NYSC

Discounted Cash Flow (DCF) is a powerful analytical method for looking at the performance of an investment. Here is an excerpt from Wikipedia that shows an example of how the analysis is performed. I am learning how to apply a calculation method like this to our cash flow properties.
John Doe buys a house for $100,000. Three years later, he expects to be able to sell this house for $150,000.
Simple subtraction suggests that the value of his profit on such a transaction would be $150,000 - $100,000 = $50,000, or 50%. If that $50,000 is amortized over the three years, his implied annual return (known as the internal rate of return) would be about 13.6%. Looking at those figures, he might be justified in thinking that the purchase looked like a good idea.
However, since three years have passed between the purchase and the sale, any cash flow from the sale must be discounted accordingly.
At the time John Doe buys the house, the 3-year US Treasury Bill rate is 5%. Treasury Bills are generally considered to be inherently less risky than real estate, since the value of the Bill is guaranteed by the US Government and there is a liquid market for the purchase and sale of T-Bills.
So, calculating exclusively for opportunity cost, we get a discount rate of 5% per year. Using the DCF formula above, that means that the net present value of $150,000 received in three years is actually $129,146 (rounded off). Those future dollars aren't worth the same as the dollars we have now.
Using simple subtraction again, the present-value profit on the sale would then be $29,146 or a little more than 29%. Amortized over the three years, that implies a discounted annual return of 8.6% (still very respectable, but only 63% of the profit he previously thought he would have). Note that the original internal rate of return (13.6%) minus the discount rate (5%) equals the discounted internal rate of return (8.6%). The discount rate directly modifies the annual rate of return.
But what about risk?
The house John is buying is in a "good neighborhood", but market values have been rising quite a lot lately and the real estate market analysts in the media are talking about a slow-down and higher interest rates. There is a probability that John might not be able to get the full $150,000 he is expecting in three years due to a slowing of price appreciation, or that loss of liquidity in the real estate market might make it very hard for him to sell at all.
For the sake of the example, let's then estimate his risk factor is about 5% (we could perform a more precise probablistic analysis of the risk, but that is beyond the scope of this article). Therefore, this analysis should now include both opportunity cost (5%) and risk (5%), for a total discount rate of 10% per year.
Going back to the DCF formula, $150,000 received three years from now and discounted at a rate of 10% is only worth $111,261 (rounded off) in present-day dollars. The present-value profit on the sale is now down to $11,261 discounted dollars from $50,000 nominal dollars. The implied annual rate of return on that discounted profit is now 3.6% per year.
That return rate may seem low, but it is still positive after all of our discounting, suggesting that the investment decision is probably a good one: it produces enough profit to compensate for opportunity cost and risk with a little extra left over. When investors and managers perform DCF analysis, the important thing is that the net present value of the decision after discounting all future cash flows at least be positive (more than zero). If it is negative, that means that the investment decision would actually lose money even it appear to generate a nominal profit. For instance, if the expected sale price of John Doe's house in the example above was not $150,000 in three years, but $130,000 in three years or $150,000 in five years, then buying the house would actually cause John to lose money in present-value terms (about $6,000 in the first case, and about $9,000 in the second). Similarly, if the house was located in an undesirable neighborhood and the Federal Reserve Bank was about to raise interest rates by five percentage points, then the risk factor would be a lot higher than 5%: it might not be possible for him to make a profit in discounted terms even if he could sell the house for $200,000 in three years.
In this example, only one future cash flow was considered. For a decision which generates multiple cash flows in multiple time periods, DCF analysis must be performed on each cash flow in each period and summed into a single net present value.
Wikipedia contributors (2006). Discounted cash flow. Wikipedia, The Free Encyclopedia. Retrieved 23:35, April 22, 2006 from http://en.wikipedia.org/w/index.php?title=Discounted_cash_flow&oldid=49480149

We rehab'd this house last year with the help of our very capable contractor team. This house is one of the newly built single family houses in our city which we were lucky to find through HUD houses for sale. When we bought it, it needed a roof and a lot of cleaning up inside. We cleaned and painted, replaced all the flooring and put in a new furnace. We didn't need to worry about lead paint because the house was built after 1978. The windows were newer and tight, and the house was built with good insulation. The house is located in a turn around neighborhood, and we feel good about our contribution by bringing this house back up to proper condition.

Our strategy, buy and hold. We bought the house for $29K from HUD in poor condition. We did the necessary repairs for another $18K, so we ended up with $47K invested. I closed on a 30 year fixed, 80% of appraised value loan last month for $52K. This was enough to repay all our costs and closing fees. The property is rented to a family that appreciates it and cares for it as their own home. We get a small cash flow every month after our expenses for the mortgage, taxes, management fees, water, and maintenance.

The best part of this story is the appreciation we get from the community for turning this property around, adding value to the neighborhood and providing a good home for one family.

Handling lead paint dangers is a growing concern in old housing stock, like we have in Rochester, NY. The City of Rochester has developed some tough new policies concerning lead hazards in Rochester homes, these will go into effect this summer. The details are still being worked out but the costs for testing for lead and then providing a remedy will be borne by the property owner. Here is a link to the City of Rochester legislation. Here is a link to some current news on the subject and the possibility of some tax incentives to help landlords...Check out Senator Hillary Clinton.

At Beechwood Development, we employ HUD lead certified contractor teams to perform lead abatement and lead remedies. Our policy is to be proactive concerning the lead paint issue. We recommend peeling paint be repaired when discovered and windows be replaced with new vinyl replacement windows when seriously deteriorated. We stress good house keeping to our tenants, routine cleaning of floor surfaces is a good way to control the spread of lead dust. We would be glad to discuss the new regulations with you and help assess the impact on your property.

Here is a great guide concerning how to work with lead paint published by the US department of Housing and Urban Development (HUD). You can find this guide at http://www.hud.gov/offices/lead/training/LBPguide.pdf

This week, Linda Tard started working in our office. She comes to us with a medical office background, and is really great at getting us organized! One of her first duties is to organize and create start-up packages for investors and for tenants. The documents we need to get everything set up are included, everything from contracts to tax forms.

Here is a partial list of the forms Linda is working on pulling together for the investor package:

List of Investor forms
o New investor letter – Introductory letter, welcoming a new investor into our business
o Beechwood development Management Agreement – This is the contract between an investor and Beechwood Development
o New Investor set-up - contact information and tracking form used at intake to set up a new investor in our systems
o Existing investor - tracking form used for adding an additional property and tenants to an investor profile we already have set up
o Monroe Dept. of Social Services contract – This is the landlord-tenant agreement, we need to get the landlord part filled out.
o DSS Vendor Number request form – application for DSS vendor number, needed before DSS subsidy will be paid
o The Housing Authority change of owner form – used in conjunction with Section 8 to transfer payments to a new owner
o The Housing council landlord letter – States high level policies and resources for landlords
o Request for Tax payer certification identification number (W-9) form – a US tax form that must be submitted with other forms, like the DSS vendor number request form

Today we had an arson fire set at one of the multi family properties we manage.
Apparently, one tenant's argument with other tenants led to this fire. The police and fire department were there and many arson investigators. The fire was set with gasoline and luckily only caused minor damage. No one was injured but the FD and police did not want the building occupied overnite. Alex Hernandez and I secured the building and will be back on Wednesday to help the tenants retrieve their belongings. A couple of the tenants received temporary shelter through the Red Cross. All in all, an exciting afternoon.

What lessons are in this experience? Obviously, it is important to have fire insurance and to have all that paperwork in good order. It would be greaat if your tenants also haverentors insurance to cover any loss they might experience. Temporary housing riders are also a good idea, if available - but were not needed here. I will look into the responsibilities of a property owner to provide temporary housing in a situation like this and report back in a future post.

Another lesson here is the obvious difficulty we can all get into when we deal with multiple family dwellings. In this case the violence has become extreme, causing property damage and (we have heard from the police) personal injury. These are important factors to consider when looking at a property like this. With no vacancies, these cash flow like crazy. But with problems...

Here is a spotlight on one of Rochester's neighborhoods where Beechwood Development is working and expanding in the local market. This information is taken from the City of Rochester's website

'Urban by Choice' banners greet you as you visit the 19th Ward in the southwest corner of the City of Rochester. It is an appropriate slogan for the neighborhood with the oldest continually operating neighborhood association in Rochester. With over 22,000 residents, the 19th Ward is the largest residential neighborhood in the city and among its most diverse. Residents from different economic and racial groups have chosen the 19th Ward neighborhood because of its many amenities, active neighborhood association and strong sense of community.
The current 19th Ward Community Association remains true to its roots. Its mission is "...to create a conscious multi-racial community where individual and cultural differences are not only tolerated, but celebrated and where people share a sense of community...". In addition to the annual House Tour, the 19th Ward neighborhood has many other social events, including a Square Fair in June, annual convention in November and community dinners in February. All activities, committees, and events are volunteer based and rely on neighbors working together.
Proximity to facilities such as Genesee Valley Park, the University of Rochester, the Erie Canal, the Rochester International Airport and Interstate 390 make the 19th Ward a convenient and attractive place to live. Many residents were drawn to the area by the quality and character of 19th Ward's housing stock. Houses range in style and size from one-story cottages to stately mansions. Regardless of size, most houses have hardwood floors, natural wood trim, leaded or stain glass windows and open porches. These houses have been highlighted in the annual Community Association House Tour since 1971.
Housing issues directly lead to the formation of the 19th Ward Community Association in 1965. Some real estate agents were engaged in "Block Busting" practices, including the use of race issues to cause panic selling. Residents were concerned about this and agreed in their initial charter to work together to provide "a model for the possibility of a racially integrated community within a stable residential area". These housing issues were addressed by the formation of a Real Estate Center to facilitate home sales as well as by a housing preservation program. The newly formed 19th Ward Community Association soon created other programs focused on local schools, youth services and recycling.

Hello from Rochester, NY! I'm Walter Dutcher and I'm learning how to use this blogging service to create a weekly newsletter to help inform and educate our many investors across the US and around the world. Please have patience with me as I gain some expertise in this new area. If you have any requests for information that might be of general interest to others, please let me know and I will get a post up with that topic. Stay Tuned!