Update, Finally! After a long absence from this blog, we are back at it and working on some updated articles with current information! Stay tuned!

The staff at Beechwood Development have been busy collecting information and submitting Monroe County Lead Grant paperwork under the new HUD grant. This post has some links to essential information and forms for the grant.

It is important to provide all of the information requested. The county staff will not accept applications that are not 100% complete and accurate. Also, if you have any outstanding city or county taxes for any property under the same entity name, you will not be able to continue in the application process.

This grant will reimburse a property owner up to $5000 for each unit applied for. The work will involve lead remediation and/or abatement and must be done by lead certified workmen. Please contact our office for more information and help with this application process.

Click here for information about the Monroe County Lead Grant Program. Click here for the grant application form, and here for the eligibility requirements

This is an investor letter we will be sending out to all our investor clients, authored by Tonia Carson - Real Estate sales agent.





NEW LEAD REGULATIONS
EFFECTIVE JULY 1, 2006

To all investors working with Beechwood Development Real Estate and Property Management:

The city of Rochester has new lead regulations going into effect July 1, 2006. These regulations have been set to try and reduce the number of children with high lead levels. Lead affects a child’s brain function and can have long term consequences. We all need to do our part to help protect the children of the community. As investors, we also need to do our part to reduce our liability with this problem.
Any house built prior to 1978 is suspected to have lead based paint in it. The main hazards are chipping or peeling paint inside or outside the house and bare soil around the exterior of the houses.
Beechwood Development has been at the forefront of reducing lead and lead liabilities since it was founded in 1999. Cheryl Hurley and Walter Dutcher have both worked closely with investors, tenants, city officials, and city inspectors to help eliminate lead hazards in the rental properties that they own. We are making recommendations to all investors based on the experience and knowledge that we have.
The regulations affect the entire city and have different inspections and testing for different areas of the city. There are two high risk areas that have been selected by the city to start the major lead remediation. These two areas were selected based on a 5 year study done to evaluate the highest areas of lead poisoning. By 2010, the city expects to have the entire city following the same testing guidelines.

The high risk areas are best defined by the city ward involved. Attached is a ward map and the ward number can also be found at the top of an MLS listing (AD number) The northeast sector includes AD05, AD06, AD07, AD16, and AD17 in their entirety and the western most portions of AD18 and AD22 (from Goodman St. west). Much of this area is the 14621 zip code.
The northwest sector is AD01, AD02, AD09, AD15 in their entirety, the southern part of AD10 (Driving Park and south), AD11 from W. Main north, and AD20 from West Ave north. Beechwood property management will be sending a letter to all investors who currently own in these areas on the necessary maintenance and inspections that will need to be done.

The regulations will be enforced through the C of O inspection. A certificate of occupancy (C of O) is issued once every 5 years on any rental property. It is required on all rental properties. The C of O is performed by a NET office inspector and in the past has not been as strict as the Section 8 inspections. (For a list of Section 8 requirements please refer to our website.) When real estate agents preview a property for an investor, we are evaluating it based on the stricter Section 8 standards. Section 8 also inspects on a yearly basis to insure your properties are well taken care of.
The C of O inspection in the high risk areas will now include a mandatory lead test which will be paid for by the city. If the test comes back positive, lead remediation will be required by a lead certified contractor or worker. At this time, Karen and Roger Jackson, K and R Home Repairs, are the contractors of choice. They are lead certified supervisors and are able to do all necessary lead remediation with any crew that they have. All of the Beechwood maintenance crew will have the 8 hr lead certification, but that only allows them to do small jobs. This includes touch up paint or landscaping. After the work has been done the owner will be required to have a lead risk assessor or certified lead inspector do a clearance test. This cost will be paid by the city. If the clearance test passes then you have a lead free certificate that is valid for 2 years and will transfer with ownership. If it fails, then you will be required to have a second lead test (approximately $400-500) and clearance test (approximately $500-$800+) at your expense.
In the areas that are not high risk, there will be a visual inspection done of the exterior and interior and remediation will be needed if problems are noted. A work order is required by the city within one week of the citation and remediation to be done within one month.

The most common citations will include:
1. bare soil
2. any area greater than 20 square feet of deteriorated paint on the exterior of the house or accessory buildings (garage, shed, porch)
3. any area greater than 2 square feet of deteriorated paint on the interior of the house
4. any small building component (window, door, crown molding, base trim, etc.) where more than 10% of its total surface area is deteriorated

With any remediation that needs to be done, if the units are tenant occupied, the tenant must relocate at the tenants’ expense. The owner is not responsible to pay for any relocation expenses. However, you will not be able to collect rent during the time of remediation.
RECOMMENDATIONS

We are strongly recommending that all old wood windows be replaced with new vinyl windows. We have recommended this in the past and it has been rejected by most investors due to the cost. If you have old wood windows and choose to not replace them, yearly painting will be required.
Vinyl siding, aluminum siding, asphalt, or asbestos/composite (may be painted) siding are recommended. If you own or buy a house that has wood exterior that is painted it will need to be on a schedule to have a Beechwood employee visually inspect once a year and maintain as necessary (annually or biannually).
Interiors will need to be painted as needed and at turnover. There is not a significant change with the interior painting because previous and current Section 8 guidelines would have failed any unit with the new city criteria.
The flooring of choice is hardwood or linoleum. Carpeting will collect lead dust and will need to be replaced periodically. The lead test samples will be taken from the floor or the deteriorated areas.
All surfaces will need to be cleaned thoroughly. The cleaning is more than a basic turnover cleaning. Surfaces need to be vacuumed and washed. Carpets may not be able to be lead free without replacement.

When purchasing a new property, the real estate agents will be giving a breakdown of annual maintenance required to keep lead free certification. We will continue to recommend properties in the high risk areas because these are the properties with the most potential. We will also continue to ask all sellers to provide a current C of O dated after the date of the contract with all purchases. In addition, we will now start requiring the lead free certificate be transferred also.

We are trying to stay ahead of this, but there is a lot of information that we do not have yet. We will keep you informed as we learn more. Please direct all questions to your real estate agent, via email, on any properties that you already own or are purchasing. The real estate agents will have the most time and knowledge to answer your questions.

If you are not currently working with Michelle, Tonia, Karen, or Walter, please send the email to tonia.carson@frontiernet.net.

We thank you for your business and your patience. We look forward to working with you to make Rochester a safer place to live in and invest in.


Sincerely,

Cheryl Hurley, owner/broker, and the entire Beechwood staff

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