American Apartment Owners Association

5 Mistakes Landlords Make When Approving Tenants

Mon, 12/11/2017 - 12:52pm

 

  1. Not getting RentGuard

A RentGuard Analyzer is provided in every AAOA tenant screening package. If your tenant qualifies (most do) you can purchase or have your tenant purchase annual coverage for lost rent, damages, or legal fees. This is better than traditional insurance or even a security deposit because it covers you up to $10,000 against common rental losses. Landlords who do not get RentGuard may later find themselves paying out of pocket for lost rent or damages. In many cases a security deposit is not enough and even if you take a tenant to court it is unlikely that you will collect a judgment from the tenant. Visit or call (866) 579-2262 for more information about RentGuard.

  1. Relying solely on a credit score to make a decision

A tenant’s credit score is one piece of their story. What’s more important than the score is why the person’s score is low. Did they have a rough period in their life that they are now recovering from? Is it because they simply have not established much credit history because they are young or new to the country? Or is they have a good score, do you think they can afford to pay your rent while also paying off their debt? If you need help reading a credit report you can always call us at (866) 579-2262 to get live support.

  1. Not running a criminal background check

Many landlords have a “feeling” about an applicant and maybe think it’s not necessary to run a background check on every tenant, but on other tenants they might. THIS IS A DIRECT VIOLATION OF THE FAIR HOUSING ACT so please make sure to treat every tenant equally. The only reason not to run a criminal background check is if your applicant is under the age of 18 or if you plan to never run a criminal background check on ANY applicant – which we advise against. Your due diligence as a landlord is to first ensure that your community is safe. Should anything happen on your property you’ll want proof that you ran a background check and considered the nature of the crime, if any.

  1. Not collecting a social security number

Unfortunately, due to recent identity fraud scandals, landlords and tenants alike are becoming more cautious about sharing their social security number. However, a social security number is still the main piece of data used to identify an individual. Although you could run a background check without one, you can only imagine how many people have the same first and last name and date of birth in the US. Verifying records and getting a credit check becomes much more difficult. Secondly, if your tenant later skips out on rent, having their social security number is a key piece of information you can use to locate them and serve them a court notice or turn them into a collection agency.

  1. Not checking references or source of income

Ask your applicants for multiple references including two or more landlords and a current employer. Although they may not be able to speak to their character, they can legally share important facts like whether they paid rent on time or their employment status. Be sure not to discriminate based on source of income such as disability, self-employment, child support, etc, but verify that they have sufficient income to pay for rent. If you don’t do this, you could be renting to someone who simply can’t afford rent or someone who has a history of making late rental payments. Remember just because someone has a good score and no eviction doesn’t mean they aren’t a problem tenant.

 

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7 Tips to Invest in Multifamily Property

Mon, 12/11/2017 - 8:49am

Buying a multifamily property can be an important next step for a real estate investor who had previously purchased single-family homes to rent to tenants. Doing so can allow you to produce more income and build net worth faster, if you’re up for the challenge.

“You’re ready to buy a multifamily property when you’re excited about the idea,” says Brian Davis, a real estate investor and co-founder at SparkRental.com. “I’ve known people to buy a multifamily property as their first investment property, and I’ve known investors to buy dozens, even hundreds, of single-family properties because that’s what they liked.”

The key to determining whether the increased responsibility, liability and capital reserves required to buy a multifamily property suits you is performing careful due diligence, so heed the following tips from real estate experts:

Consider living in one of the units for favorable terms. If you buy a building with four units or less and live in one, you can qualify for owner-occupied financing with little money down, while investors usually have to put at least 20 percent down, says Mark Ferguson, a real estate agent, investor, author and creator of InvestFourMore.com.

It may also allow investors to purchase another investment sooner because their debt-to-income ratio would be lower to show banks they are better qualified, Ferguson said.

Choose the right professionals to help. Buying a multi-unit building can be overwhelming, so choose an experienced broker who can help you through the entire due diligence process.

“At a minimum, your experienced team should include a broker, attorney, and lender,” said Lee Kiser, managing broker of Kiser Group in Chicago

 

“These professionals can guide you through local practices and customs, and help you determine the most important items to review during due diligence,” Kiser says, which include physical aspects of the building and the financial and cash flow of it. Instead of hiring a general inspector, enlist consultations of local tradespeople to give you opinions for each major system or component of the building.

Ask for detailed paperwork. Request income and expense statements for the current and previous years, current rent rolls, service contracts and all existing reports, Kiser says.

“Make sure the historical information matches your expectation of the current operations – and if it doesn’t, find out why,” he says.

“Get very, very familiar with the vacancy rate in that neighborhood,” Davis adds, and talk to the tenants directly to get honest feedback about the building’s condition and potential problems.

Also, verify proof of rental payments and copies of leases, says Janine Acquafredda, associate broker of House n Key Realty in Brooklyn, New York. Have security deposits transferred to you and meet all of the current occupants.

Value the prospect carefully. A multifamily property is not valued by its price per square foot, but rather its income and return on investment generated. Look at the income and expenses of the building and see how much is left over, which is called net operating income. This number is divided by the typical rate of return for a market area (called a capitalization rate) to determine fair market value, Davis says.

A cash-on-cash return is determined by dividing the income after expenses by the cash you’ve put into the property, Kiser says.

Keep adequate cash reserves. Unexpected events will occur when owning a bigger rental property. For instance, do not assume the property will be fully rented all the time or that tenants will pay consistently, says Corey Vandenberg, a mortgage banker in Lafayette, Indiana.

“Sometimes it’s good to see if 50 percent rented would pay the bills,” he says.

You’ll also want to make sure that you know what it will take in your jurisdiction to evict a tenant, says Ralph DiBugnara, vice president of Residential Home Funding in Parsippany, New Jersey.

A good rule of thumb is to take 10 percent off of the top of expected rents to prepare for unexpected market declines, vacancies and other factors, says Adam Bray-Ali, a Los Angeles real estate agent and investor.

Know what you’re getting into. “Do you want to be a landlord for reasons other than money?” Bray-Ali says. “Your due diligence should include an attitude check to determine if you want to deal with the management.”

“Headaches are largely based on the quality of the neighborhood and the age of the property,” Davis says.

You can determine those factors by seeing how it is classified – either as A, B, C or D class property (A being the best condition) – and buy one according to your wherewithal and budget.

“Having owned many D class properties, I can tell you firsthand this is entirely true,” Davis says. “In my worst properties, it’s a constant struggle to collect rent, to repair damage caused by tenants, to keep the properties rented, and so on. In my best property, I have none of those headaches. All of my renters there have always paid on time like clockwork and treated the property with kid gloves.”

There is often less inventory of multifamily properties than single family homes, so “you may have to sacrifice on location or property condition to find one in your price range,” says Allison Bethel, real estate investor analyst for FitSmallBusiness.com.

Bethel says investors often fail to confirm property is legally zoned for its use and number of units.

It’s also a good idea to have a property lawyer set up your leases and an LLC to own the property, Vanderberg says.

Consider professional management. First-time apartment building buyers should think of paying a property manager to handle day-to-day issues for tenants and repairs, which normally costs a fee of 3 to 10 percent of rents, Kiser says.

“Each market has its own idiosyncrasies for landlord-tenant relations, advertising, leases, disclosures and many more items,” he says. “It is usually a good idea to learn this from a professional third-party manager working for you than to learn by making the mistakes yourself.”

 

Source: money.usnews.com

 

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New trend: Random spaces in existing buildings becoming rental housing

Mon, 12/11/2017 - 8:45am

Regulations allowing San Francisco property owners to convert common spaces into accessory dwelling units have brought forth a flood of applications to carve new apartments out of everything from garages and basements to old boiler rooms.

In the first nine months of the year, property owners applied to create 593 accessory dwelling units, known as ADUs. That is more than double the 242 ADUs that were applied for during the first nine months of 2016. There are now 1,046 ADUs in the pipeline, with building permits approved for 531 of them.

San Francisco’s big jump in ADUs — often known as granny flats or in-law units — started in 2014, when the Board of Supervisors passed an ordinance by former member Scott Wiener allowing ADUs to be added to buildings undergoing mandatory seismic retrofitting. In 2016 legislation by Supervisors Aaron Peskin and Mark Farrell allowed buildings with five units or more to create an unlimited number of ADUs.

And many more are likely to come, said John Pollard of the SF Garage Co., a contractor whose clients are either building or waiting for permits for more than 300 ADUs.

“We are getting a ton in the Sunset, the Richmond, the Castro, Noe Valley, Haight-Ashbury, Russian Hill, Telegraph Hill,” Pollard said. “Pretty much every multiunit building with crappy old storage rooms is taking a look at this. You’ve got all these property owners that realize they are sitting on dead equity.”

So far 317 property owners going through soft-story retrofits, which enhance earthquake safety by strengthening wood-frame buildings that have poor reinforcement at the ground level, have applied to add 660 units, about 63 percent of the total ADUs in the pipeline.

“When we first started the program, there was just a trickle of applications, and some people pounced and said the program wouldn’t work,” said Wiener, now a state senator. “As with anything new, it’s going to be a slow start. People have to evaluate their buildings and finances and talk to an architect. Now we are seeing a great acceleration of applications. I’m very happy to see it.”

At 735 Taylor St., a 62-unit building on lower Nob Hill, Veritas Investments, one of the biggest landlords in San Francisco, is adding seven units in a ground-floor space previously used as a dining hall and common kitchen.

The seven units are small — between 220 and 381 square feet — and will rent for $2,400 to $2,800 per month. Veritas President Yat-Pang Au said the ADUs cost $300,000 to $400,000 a unit to construct — less than the $600,000 it typically costs to develop a unit in San Francisco, but still costly. He said the economics don’t work as well if there’s only enough space for one or two ADUs.

“It’s about making the economics work — one unit can cost $1 million,” he said.

Au said Veritas is looking at adding 200 to 400 ADUs in 100 buildings over the next five years.

While ADUs are commonly added to single-family homes in many cities, in San Francisco most of the action has been in larger apartment buildings. Owners of 39 buildings have added five units or more since the legislation passed.

“We are very happy to see the large apartment buildings are taking advantage of this,” said Kimia Haddadan, policy and legislative planner with the San Francisco Planning Department.

Kristy Wang, policy director at the urban think tank SPUR, said San Francisco is the only California city to create an ADU program for multifamily buildings, rather than just single-family homes.

“Owners of apartment buildings are already landlords and are accustomed to rent control and other rental regulations and have more experience managing construction projects,” she said. “It’s a soft way to increase density in a dispersed fashion without changing the physical landscape very much.”

Pollard said city residents’ changing transportation preferences are allowing landlords to get creative with garage space. A property owner on the 1700 block of Mason Street, for example, is putting three ADUs into a garage and a vacant boiler room.

“They took out the boiler 25 years ago and can take out the parking because the Millennials don’t use it — they all ride bikes and take public transportation,” he said.

 

Source: sfchronicle.com

 

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Hardwood Flooring Is Top Preference

Mon, 12/11/2017 - 8:36am

Hardwood flooring is dominating the main living areas of new homes, and engineered hardwood has been particularly catching on over the past decades, according to the latest surveys from Home Innovation Research Labs.

Engineered hardwood floors are made up of layers: the top and bottom layers are natural wood, but the middle contains a core of plywood. It’s known to be a more quick, fuss-free installation than solid hardwood.

Hardwood has become the most popular flooring in new-home kitchens, according to Home Innovation Research Labs. Hardwood floors—both solid and engineered—have increased from 11 percent of all flooring in new single-family homes to 31 percent over the past 12 years.

Other flooring types are decreasing in popularity. For example, ceramic tile has posted a slower growth rate from 15 percent to 21 percent over the last 12 years.

Hardwood flooring represents 65 percent of all flooring installed in new-home dining rooms, half of all flooring in living rooms, and about 45 percent of all flooring installed in kitchens, BUILDER reports on the study.

Hardwood of all types has grown in popularity in all areas of the home, except for the bedroom and bathroom. Carpeting remains the champ in bedrooms.

 

Source: realtormag.realtor.org

 

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The profits made from flipping homes continues to shrink

Mon, 12/11/2017 - 8:34am

Even as more investors are flipping homes, they’re seeing less profits in return.

High home prices, increasing renovation costs and a skimpier supply of distressed properties are making it more expensive to get in the game, even though demand for move-in ready homes is high.

Single-family homes and condos flipped in the third quarter of this year brought an average gross profit of $66,448 per flip, representing a 47.7 percent return on investment for flippers, according to Attom Data Solutions, a real estate data and analytics company. Attom defines a flip as a home bought and sold in a 12-month period.

That return is down from 48.7 percent in the second quarter and from 51.2 percent in the third quarter of last year. It is the lowest average gross flipping return on investment since the middle of 2015.

“Home flipping profits continue to be squeezed by a dwindling inventory of distressed properties available to purchase at a discount and increasing competition from fair-weather home flippers often willing to operate on thinner margins,” said Daren Blomquist, senior vice president at Attom Data Solutions.

Despite lower returns, home flipping is still a popular business. Close to 49,000 homes were flipped nationwide in the third quarter, unchanged from a year ago. One big shift, however, is that there are more investors flipping, and they’re each flipping fewer homes. The ratio of flips per investor, just 1.25, is the lowest since 2008.

“A more than nine-year low in the ratio of flips per investor is evidence of this increased competition, which is pushing many investors to new metro areas that often have weaker market fundamentals but also come with a bigger supply of discounted distressed properties to flip,” Blomquist said.

That may be, but Washington, D.C., which is not exactly a weak market, came in with the highest flipping rate in the nation. It was followed by Nevada, Tennessee, Louisiana, Alabama and Arizona.

Metropolitan areas that saw the highest flipping returns were Pittsburgh, Baton Rouge, Louisiana, Philadelphia, Baltimore and Cleveland.

High-end real estate agent Tony Giordano, of the Opulent Agency, said he has multiple flipper clients right now, but the ones who get the highest returns are the builders. They tear down homes and start from scratch.

“The key I see with your most common type flipper is that the carrying costs can be much lower today than in previous hot markets. Cost of construction is higher, but time to flip lower,” Giordano said.

That may be why the number of flippers continues to grow. Technology is also making it easier for flippers to find the services they need and at the same time keep costs low.

“Even Amazon plays a part in how much faster and cheaper you can find, purchase, deliver and flip!” said Giordano.

 

Source: cnbc.com

 

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Emergency lighting during power interruptions guides occupants to safety

Mon, 12/11/2017 - 8:31am

What would you do if all the lights in your building went out during an emergency? Would your occupants know with 100% accuracy how to navigate the nearest exit?

A poll commissioned by Cintas Corporation shows that more than a third of all U.S. adults would not feel very confident getting around a building safely following a power loss. This poses a substantial problem, the largest concern being that the U.S. as a whole is highly susceptible to power failures.

“The U.S. experiences more power outages than any other developed country in the world, so it’s important for businesses to be prepared,” says Taylor Brummel, Marketing Manager of Cintas Fire Protection. “Whether it’s severe weather, faulty power grid equipment, a fire or any other issue, emergency lighting can assist in guiding occupants to safety when power fails.”

The poll also found that if the lights went out at their place of work, 50% of U.S. adults would not feel very confident in their ability to walk up and down stairways safely. More than two in five employed Americans would not feel very confident in their ability to execute their workplace’s emergency plan – if they have a plan at all.

The presence of emergency and exit lighting is often omitted or glossed over in life and fire safety programs, which is problematic as power outages continue to rise. Power outages are almost four times more likely to occur than they did just 15 years ago.

Source: buildings.com

 

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Seven Chestnuts on the Open Fire – Q&A About Quiet Title Actions

Fri, 12/08/2017 - 5:26pm
  1. Question: What is the difference and connection between unlawful detainer actions and quiet title actions?

Answer: You are all probably familiar with unlawful detainer actions- the main issue is possession of real property either under state law grounds or under a rent control ordinance. The landlord is trying to evict the tenant! The big brother of unlawful detainer actions are Quiet Title Actions. The main issue in a Quiet Title Action- is not the right to possession, but is the question of who owns what percentage of right, title, and interest in real property as of a given date. The court “quiets the title” and resolves the dispute because the imagery is two competing owners arguing about the right of percentage of ownership.

Obviously, there is substantive overlap and “sibling rivalry” between the questions presented in unlawful detainer actions (which deal with the right of possession) and quiet title actions (which deal with degree of ownership).    If you don’t have clear title, then how can obtain possession?   And, sometimes the fight is about a right to superior title, even if you have short term possession.

  1. Question: Which court is the proper jurisdiction for Quiet Title Actions?

Answer: The proper jurisdiction is generally always the unlimited jurisdiction division of the local superior court where the property is located.

  1. Question: Will the trial of a Quiet Title Cause of Action be tried by a judge or jury?

Answer: Generally speaking, the trier of the case will be the judge assigned to the case.    The only exception is if there is a right to arbitration (private judge can decide the claim), or there are related damages claims for different causes of action- for those claims, there is a right to a jury trial. You don’t want a jury deciding title issues!

  1. Question:   What are the common types of Quiet Title Actions?

Answer: Examples include but are not limited to:

  • Fraudulent transfer actions involving a fraudulent deed of trust or fraudulent transfer deed;
  • Gaps in the chain of title;
  • Mistake in legal description for a grant deed or deed of trust ;
  • Mistake in recording priority for a lender or fee simple owner;
  • Adverse possession.
5. Question: Can you bring a Quiet Title Action with other claims in court at the same time or do you need to file a separate action for your quiet title claim?

Answer: Quiet Title actions should be filed with factually related claims such as Reformation, Declaratory Relief, Fraud, Slander of Title, Breach of Contract, Specific Performance, or Equitable Subrogation.   It just makes more economic sense to file all related claims in the same action.

  1. QuestionWhat is the Statute of Limitations (court filing deadline) for a Quiet Title Action?

Answer: Generally, there is no specific statute of limitations, but the Court may adopt and bootstrap the statute of limitations of an underlying factually related claims.  For example, you are filing a case to quiet title due to a fraudulent transfer.    The court may adopt the statute of limitations for fraud, which is 3 years from the time of discovery.   The court may also apply the equitable principles of “laches,” if a claim is filed very late.  So, you should file your quiet title action as soon as possible to preserve evidence and subpoena witnesses to testify.   The court system does not reward plaintiffs who wait and sit on their rights.

  1. Question: How can you protect you, your family, your companies, and your investors from title disputes?

Answer:

  • Purchase title insurance.
  • Get a “title checkup”  to see what is on your real estate title- review the property profile and most recent preliminary title report.    You may be surprised at what you find.  Do you own the property that you think you purchased?   Check the legal description.  Review your deeds.
  • Consult LA Real Estate Law Group.
  • Use the informational website www.laquiettitleattorney.com as a resource.

Copyright 2017 Nate Bernstein, Attorney at Law. LA Real Estate Law Group. All Rights Reserved.

The author of this article, Nate Bernstein, Esq., is the Managing Counsel of LA Real Estate Law Group, and a member of the State Bar of California and his practice concentrates in the areas of complex real estate litigation, commercial litigation, employment law, and bankruptcy matters. The contact number is (818) 383-5759, and email is natebernstein44@gmail.com.  Nate Bernstein is a 22-year veteran Los Angeles real estate and business attorney and trial lawyer. Mr. Bernstein also has expertise on bankruptcy law, the federal bankruptcy court system, creditor’s rights and debtor’s bankruptcy options. He previously served as Vice President and In House trial counsel at Fidelity Title Insurance Company, a Fortune 500 company, and in house counsel at Denley Investment Management Company. Nate Bernstein created www.laquiettitleattorney.com, a leading educational resource on quiet title real estate litigation. Nate Bernstein is a local expert on real estate law and economic trends in the real estate and leasing market, business law, and bankruptcy law. Nate has personally litigated more than 40 major real estate trials, and has settled more than 200 complex real estate and business cases. 

Any statement, information, or image contained on any page of this article not a promise, representation, express warranty, or implied warranty, or guarantee about the outcome of a legal matter, and shall not be construed as being formal legal advice. All statements, information, and images are promotional. All legal matters are factually specific, laws change on a daily basis, and courts interpret laws differently. No express or implied attorney-client relationship shall be inferred from any statement, information, or image contained any pages of this website. No attorney-client relationship is formed until the client or the client’s representative, and the attorney signs a written retainer agreement.

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How To Welcome New Tenants To Your Rental Property

Thu, 12/07/2017 - 10:31am

Posted on Dec 07, 2017

Welcoming new tenants is an easy way to start the landlord/tenant relationship off on the right foot. It communicates that new tenants are appreciated, cared for and welcome in your rental; and generates goodwill that can smooth over friction down the road. With that in mind, how can you make new tenants feel welcome? 

The best way to welcome new tenants to their apartment is to clean the unit thoroughly before they move in. A dirty rental can create a negative impression; tenants may even call you and demand it be cleaned.

Clean the property yourself or hire professional cleaners — even if the previous tenants cleaned at move-out. Investing in deep cleaning shows tenants your expectations for property management. They may be more likely to keep the unit clean or notify you of any problems when it’s clear you care about upkeep.

Provide new renters with a list of practical information. If there is parking on site, where is it? Does parking cost extra? If tenants have access to basement storage or on-site laundry, where is that? What are the local utilities so renters can have them transferred in their names?

Make sure tenants have your up-to-date contact information in case there’s an emergency.

Think generally, as well: Where are the nearest hospitals? What is the non-emergency police number? What does a new tenant need to know about the area?

On move-in day, show up and greet new tenants personally. A simple hello and a handshake can be a thoughtful gesture on your part.

Tenant Welcome Package Ideas

You can put together a welcome package for new tenants on any budget, so there’s no need to spend a lot of money on this gesture. New tenants will have everything packed, so practical welcome basket ideas include essentials that will make them more comfortable as they adjust. Items might include:

  • Dish soap and kitchen sponge
  • Paper towels
  • Toilet paper
  • Hand soap
  • Bottled water, energy drinks or another beverage
  • Wine or beer for tenants 21 and older
  • Small selection of healthy snacks
  • Age-appropriate toys, if there are children in the rental

 

With these thoughtful items, your tenants can take care of their basic needs without rummaging through boxes looking for bathroom supplies.

To personalize the basket to your area, think about what’s unique and exciting in the neighborhood. If there’s a cute coffee shop, consider picking them up a pound of coffee and a few mugs. Alternately, get new tenants a gift certificate for a nominal amount ($10, for example).

Help your tenants explore the area by gathering takeout menus from local restaurants. It’s worth visiting these restaurants yourselves and asking if they have coupons for new residents; you may be able to save the renters some money.

Welcoming new tenants helps them acclimate. It also shows that you’re responsive and responsible as a landlord. Tenants will be more accountable when they know you’re involved with the property management because you’ve met them, left them relevant neighborhood information, and given them a welcome basket. Since happier tenants are more likely to keep renting from you, this helps ensure steady income from your properties.

For more helpful information on creating a welcoming atmosphere for tenants, join the American Apartment Owners Association. Members receive landlord tips as well as discounts at home improvement stores and on landlord/tenant forms, plus several other perks.

Disclaimer: All content provided here-in is subject to AAOA’s Terms of Use.

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The 10 Most Desirable Markets for SFR Investment

Thu, 12/07/2017 - 8:39am

Here are the top 10 markets where investors have been seeking more acquisitions, according to online real estate investment and management firm HomeUnion.

As the investment market for single-family rentals (SFRs) gets more challenging to navigate, online real estate investment and management firm HomeUnion has released a list of cities that have attracted the most attention from investors between 2016 and 2017. HomeUnion’s ranking was based on the increase in the number of homes sold for investment purposes during the period. Here are the top 10 markets where investors have been seeking more acquisitions:

10. Milwaukee

There was a 1.0 percent increase in homes sold for investment purposes in the city.

9. Indianapolis

Investment home sales in Indianapolis rose by 1.3 percent.

8. Orange County, Calif

California’s Orange County experienced a 1.5 percent increase in sales.

7. Philadelphia

Investment home sales in Philadelphia rose by 1.6 percent between 2016 and 2017.

6. Cincinnati

The city saw a 2.1 percent increase in sales.

5. New York City

Sales of investment homes in New York went up by 2.5 percent.

4. Detroit

Detroit witnessed a 2.6 percent increase in sales.

3. Atlanta

Investment home sales in Atlanta rose by 6.9 percent.

2. Columbus, Ohio

In Columbus, sales spiked by an impressive 18.1 percent.

1. Chicago

Windy City is obviously becoming more attractive to SFR investors—it experienced a 30.4 percent increase in investment home sales between 2016 and 2017.

Source: nreionline.com

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The Five Winning Property Investment Strategies

Thu, 12/07/2017 - 8:30am

Every successful property investment starts with a strategy which will guide the whole investment plan and even determine if the investment is right or not. The right strategy will save you time and money, and you won’t direct your money into underperforming investments. Any expert will tell you that their best investment strategy started with determining the type of investment, the right person to help, the ownership structure, ROI formula, and investment goals.

Here is a detailed look at these considerations:

  1. Which property should you invest in?

The property chosen determines your returns on investment or profits earned from the particular property.

You have to select the geographical area, the potential property in the area and you have to carry out a basic rental income return on investment analysis.

It is easier to meet your investment criteria once you decide the area to invest in and the market to target. The analysis also includes determining the purchase price of the property, management, and maintenance, foreseen rental income and the cost of your mortgage repayments!

Avoid purchases based on discounts. Discounts are great, but not all the time! Most discounted properties require expensive maintenance works. It gets worse when you find terrible tenants. So, to be safe, think of the huge attractive discounts as time bombs waiting to explode, but this time, the explosion fleeces you. Don’t forget to consider the potential to add value to the investment and the effects of the refurbishment on the value of the property.

  1. Get the right professionals

Who will guide you in making the best high-yield investment? Unless you work in the property investments sector, you have to get out and get help. And in most cases, you may have to get a second and a third opinion.

As you grow your investment portfolio, you will realize that having an experiences property investment team is crucial. Make sure you trust those experts and include permanent players like an accountant, lawyer, and home insurance specialist. On the reserve bench, have property managers, registered valuers, and real estate agents.

  1. The ownership structure

While this depends on your goals and circumstances, you have to consider flexibility, taxation, simplicity, growth of your investment portfolio, exit strategy and the ability to introduce other people.

  1. Rental income and investment yields

There are cases where a property generates regular income but no capital growth. This means that you can’t use your rental income as your rental yield or return on investment. Experts assert that you have to measure the returns from your rental income to returns from returns other classes of assets could offer you. This calculation helps you determine if property investment is the right idea. Ensure that the property selected has a potentially high capital growth.

The main factors that affect the rental yield include tax benefits and other deductions. Yield decreases when the property becomes expensive unless you increase the rent charge proportionally. Use the vacancy rates to determine the rental yield of property.

To get the best return, you have to look for property in a location with potential for improvement. The property should offer a high yield, and property you can renovate without running a big loss.

  1. Investment goals

Are you investing in the property to build wealth, generate income, or to save for retirement? Will the timeframe set help you meet your investment goals?

Final thoughts

Beware of your tenants’ profile, leverage your investment, and set a definite exit strategy.

 

Source: realtybiznews.com

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The Technology That Aims to Disrupt the Security Deposit

Thu, 12/07/2017 - 8:27am

Silicon Valley has long had a fascination with transforming tedious analog tasks into frictionless, touch-screen enabled transactions. Having thusly disrupted taxi rides, banking, and shopping, apartment-hunting appears to be next on the list. Mom-and-pop landlords are slowly being replaced with tech-savvy ones, who use cryptocurrency, Venmo, and other apps instead of rent checks slid under the door. Now the online rental platform Rentberry is promising to reinvent the security deposit, too.

As my colleague Kriston Capps described it last year, “Rentberry turns Craigslist into eBay.” The service invites potential renters to fill out comprehensive online profiles and participate in an auction-style bidding process for housing—the best offer (and the most responsible-looking renter) wins. The company first ruffled feathers in San Francisco last summer, stoking fears that the site could jack up already outrageous rental prices. Company CEO Alex Lubinsky claimed that Rentberry’s approach would save some renters money by driving down prices in areas of lower demand; instead, in San Francisco and San Jose it raised rents by 5 percent. The service grew quickly from its 2015 California roots: Today it lists more than 220,000 properties in 4,948 cities and is used by more than 120,000 people.

Now, Rentberry says it has found a way to make security deposits cheaper for renters, hassle-free for landlords, and majorly profitable for anonymous third parties—all using cryptocurrency. They’ve received $28 million already from pledged subscribers, and their public token sale begins today, December 5.

Rentberry’s deposit scheme works like this: Landlords will now be able to use the platform’s existing online marketplace to charge a security deposit on a property, using Rentberry’s personal cryptocurrency (aptly, if ridiculously, called BERRYs.)

Instead of paying the deposit in full, however, the renters just put down the first 10 percent as a deductible. Then, a “community” of micro-lenders—a crowd that can range from one to thousands of people—foot the rest of the BERRY bill. Those lenders, in turn, charge renters a yearly interest rate, typically between 3 and 4 percent of the deposit. As with a normal security deposit, if the landlord doesn’t note any damage at the end of the lease, the initial deductible is returned in full to the renter, and the rest goes back to the lenders.

Say a rental deposit is worth $2,000. (The average rate on the site is $1,700, according to Lubinsky, but for ease of calculation we’re using a round number.) At the start of the lease, renters pay $200; lenders pay $1,800. Every subsequent month, renters pay the lenders around five bucks. All told, instead of paying $2,000 on day one, renters end up paying as little as $54 over a full year (assuming they get their original $200 back.)

Source: citylab.com

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Only one hurdle left for Seattle regulations on short-term rentals like Airbnb

Thu, 12/07/2017 - 8:17am

A Seattle City Council committee approved regulations Tuesday on short-term rentals, including those listed on Airbnb — with a special deal for existing operators in and around downtown.

The final vote by the full council is set for Monday, with some changes possible.

Council members say their goals are to preserve the city’s housing stock for people who live in Seattle and to control a rapidly growing industry that’s competing with hotels as it serves mostly visitors.

The full council passed separate legislation Monday defining short-term rentals as certain units offered for fewer than 30 consecutive nights.

Under the proposed regulations, which would take effect in 2019, new operators would be limited to renting out their primary residence and one additional unit, while existing operators across most of the city would be limited to renting out two units (three if adding their primary residence at a later date).

There would be a carve-out for existing operators in downtown, Uptown and South Lake Union and for those using small buildings constructed before 2012 on First Hill and Capitol Hill. They would be allowed to continue renting out any number of units they operate now, plus their primary residence and one additional unit.

Councilmember Rob Johnson, who chairs the land-use committee, said former Councilmember Tim Burgess agreed to the carve-out in exchange for a group of short-term rental operators dropping a State Environmental Policy Act (SEPA) appeal.

Another reason for the downtown carve-out was to avoid hurting the corporate short-term-stay businesses concentrated there, Burgess said, confirming the SEPA appeal deal.

On Monday, Johnson pushed to grandfather in the units of existing operators everywhere in the city. He said his approach would be simpler, protect jobs and reduce the risk of the city being sued by people with units outside downtown.

“For me, the carve-out seems pretty arbitrary,” Johnson said after the committee vote. “By grandfathering in only one small section of the city, we may be on weaker legal ground.”

Johnson also said his approach, by keeping more short-term rentals in operation, would result in more revenue for the city. The council passed a new tax on short-term rentals this past month.

But other council members, including Mike O’Brien and Lisa Herbold, said they want the regulations to push units from the short-term rental sector to the permanent housing market.

There’s a shortage of housing for Seattle renters and homebuyers, and the conversion of units into visitor rentals has contributed to gentrification, particularly affecting low-income people and people of color, they said.

“For me, this discussion has always been about housing affordability and the supply of housing long-term,” Herbold said.

There are now about 6,600 active short-term rentals in the Seattle area listed on Airbnb, according to a third-party site that tracks data related to the company.

The city has lost more than 2,000 housing units to the short-term rental market in recent years, Giulia Pasciuto, an analyst with the nonprofit advocacy organization Puget Sound Sage, told council members Monday.

The council has estimated that the regulations would render several hundred units no longer eligible to be operated as short-term rentals.

Councilmember Sally Bagshaw is considering asking the council to shrink the carve-out area for existing operators. She’s heard complaints from condominium residents about short-term rental operators taking over their buildings.

On Monday, Belltown condo resident Noelle Million asked the council to stop “the ever-increasing number of tourists invading my home.”

But several short-term rental operators — including some who started in the business years ago, before Airbnb arrived on the scene — warned the council Monday about the regulations impacting their livelihoods and resulting in lost jobs.

“My wife and I created our business doing something that, at the time, was legal,” said Andy Morris, general manager of Seattle Vacation Home, which operates short-term rentals in Madison Valley and nearby.

“In the interest of fairness, it seems appropriate to grandfather those who have been acting in good faith, as we have.”

Darik Eaton, of Seattle Oasis Vacation Rentals, called the downtown carve-out a compromise. During negotiations months ago, city officials made it clear they didn’t want to grandfather in short-term rental units everywhere.

“The council members were more willing to give in” to the operators downtown “because those areas aren’t affordable” for most long-term renters and homebuyers anyway, Eaton said.

People forced to stop operating units as short-term rentals would have the option of converting those units to long-term rentals, O’Brien noted.

And people who manage short-term rental units for multiple owners would be able to continue that business.

The proposed regulations would require short-term rental operators and platforms to obtain special licenses from the city and pay license fees.

Laura Spanjian, Airbnb’s Northwest public-policy director, praised Seattle’s proposed regulations Monday.

The short-term rentals tax passed last month will be collected starting in 2019 and will be $14 a night for entire homes and $8 a night for rooms. The proceeds will be used to support community-development projects and to create affordable housing.

Seattle officials began working on short-term rental regulations more than a year ago. A full council vote was postponed this past month to allow more discussion.

 

Source: seattletimes.com

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Considering a fixer-upper? Here’s what you need to know

Thu, 12/07/2017 - 8:12am

Homebuyers often start their search looking to score a deal on a fixer-upper, hoping to transform it into their dream home. Though it sounds like fun, the reality is that the overhaul process—fraught with decision-making, unexpected headaches, and constant price considerations—can quickly overwhelm. To really make a renovation work, it’s essential to plan ahead, secure a good architect and contracting team, and get realistic about your budget and timeline. Curbed spoke to Paul Skema, president of architecture and construction firm Roth Design + Build, and Jean Brownhill, founder of online contracting service Sweeten, about what you need to know before taking the plunge on a fixer-upper.

Be realistic about the scope of project you’re willing to take on

“Before you even look for an apartment or home, you want to understand what type of project you’re comfortable with,” says Skema. It’s one thing to buy a minor fixer-upper that can be tackled with DIY projects—like pulling up carpet or laying down tile—but it’s something else entirely to buy a home that has serious structural issues. Not all fixer-uppers are alike, and the scope of the project you’re willing to take on will set the tone for your renovation. If you can’t commit the money, time, effort, and risk that goes into buying a place that needs a gut renovation, skip the open house altogether, even if the price tag looks appealing.

Set a budget

If you’re interested in tackling a fixer-upper, be realistic about how much money you can set aside for renovations after the down payment, including unexpected costs like finding an alternative living situation while it’s happening. An architect or contractor can offer an expert opinion on the scope of the project after accompanying you on a walk-through of the property.

As for the homebuyer, “Set a realistic range for your budget, and then communicate that range,” says Brownhill. “By setting the price, you’re setting the approximate level of craft, finishes and customer service that you’re looking for.” Sweeten, which pairs general contractors with renovation projects, offers an online tool to help parse out your budget.

Communicate, communicate, communicate

Communication is key when it comes to a successful renovation. Larger projects require an architect, who then hires a general contractor, who then hires subcontractors for specialty work, like plumbing. You’ll need to establish a constant flow of conversation among everyone on the team to avoid delays and budget overruns. “The momentum of construction is dependent on many small details,” Skema says.

Homeowners also need to embrace being the decision maker at the top of that chain. “One small bathroom renovation is hundreds of decisions you’re going to need to make,” says Brownhill. “You have to understand who you are as a person, and how easily you make decisions.” If you labor over every decision, be open about it with your architect and ask him or her to take the reigns, or set a longer time frame for the reno so you don’t become overwhelmed. If you’re a control freak, communicate that, too, so that your team knows to keep you in the loop at every turn.

Secure the right team

As tempting as it sounds to buy a cheap fixer-upper and hand over the renovation job to the lowest-bidding architect or contractor, don’t, as it’s a huge risk, especially with older homes that may have structural problems. “Higher-quality firms limit the risk of the project,” Skema says. “Cheaper firms, many with less knowledge and less experience, will require more involvement from the homeowner and ultimately bring more risk.” Choose a team with relevant experience, solid references, and a complimentary communication style to your own. This step may require extra research but will result in a reliable team that won’t make avoidable mistakes that will cost you more time and money in the end.

Get to know the building association and neighbors

As personal as your renovation might feel, you have to prepare for the occasional outsider calling the shots. Significant apartment renovations require the approval of the building’s owners association, some of which set strict rules on the scope of construction and when it’s allowed to happen. And an intensive house renovation runs the risk of aggravating your neighbors. Check local databases to see if neighbors have filed complaints about the fixer-upper you’re considering, which can reveal whether the home has serious issues.

Get comfortable with the permitting process

The process of obtaining permits for construction depends on where you live, but in New York City, for example, it can be time-consuming and unpredictable. Upgrading plumbing and electrical systems, moving walls, or changing other structural elements will require a licensed and insured firm to take on the work, which may require additional permits or a more involved approvals process.

Prepare for the worst

In apartment buildings, contracts are typically required between the owner and the owners association confirming that renovations will be undertaken to code and without damage to the building. If a reno goes horribly awry, the building holds the homeowner responsible, so you want to make sure that your contractor has both liability insurance and workman’s compensation. Finally, make sure your homeowner’s policy will protect you in the event of a contractor-caused issue.

Preparing for the emotional labor

Homeowners don’t always recognize the emotional labor that goes into transforming a fixer-upper. “When [the moment for your renovation] finally comes, after you’ve saved money and bought a house and you get to make it look how you want it to look … a lot of stuff comes up,” Brownhill says. To plan for the smoothest process possible, be honest about your goals and your budget before finding an experienced and communicative team that can make make all your fixer-upper dreams come true.

 

Source: curbed.com

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Worsening Affordability Costs Renters Nearly $2,000 a Year

Thu, 12/07/2017 - 8:08am

 

  • The median U.S. rent takes 29.1 percent of the typical household income – up from 25.8 percent between 1985 and 2000.
  • Renters in 34 of the nation’s 35 largest markets spend a larger share of income on rent now than they did historically.
  • Homeowners now spend $3,300 less a year on mortgage payments than they would if mortgage payments required the same share of income as they did historically.

Rising rents are eating up an increasingly large share of tenants’ incomes, costing the typical U.S. renter almost $2,000 more per year than they would if renters were devoting the same-sized chunk of their paychecks to their landlord as they used to.

Currently, the median U.S. rental requires 29.1 percent of the median monthly income. However, in the more typical housing market years of 1985 to 2000, renters spent far less — just 25.8 percent of their income — on housing. If that percentage had stayed the same, renters now would be spending $1,957 less every year than they are.

In some markets, the difference is far greater: Renters in San Jose, Calif., spend 38.4 percent of their incomes on rent, compared to 26 percent historically, which meant paying a total of $13,525 more in rent this year. That’s enough to buy a decent recent-model used car every year – or take a six-month world cruise every few years. It could also put a dent in student debt or help build retirement savings.

In Dallas, the $5,298 annual difference would be enough to save a 20 percent down payment for a typical home there in eight years, based on the September median home value in Dallas of $214,800.

Owning a home is more affordable

While homeownership is not the best choice for everyone, it can mean lower ongoing payments than renting, depending on maintenance costs. In general, homeowners spend less of their income on house payments now than they did in the more typical housing market years of 1985 to 2000 – thanks in part to low mortgage interest rates, which keep monthly costs low even as housing costs rise. The difference, between 21 percent then and 15.4 percent now, means people are spending about $3,300 less per year on the typical mortgage.

While rent affordability has worsened in 34 of the nation’s 35 largest markets, rents in Pittsburgh have remained mostly level over the past several years, allowing incomes to keep up and even outpace rent appreciation. Renters in the Pittsburgh metro now spend a smaller share of income on rent than they did in pre-bubble years, meaning they are spending about $3,400 less per year than they would have at the historical rate.

Even in Pittsburgh, where rents have remained low enough that renters now spend $3,400 less a year than they would at the historical rate, the typical mortgage payment takes an even smaller share of income. Rent in Pittsburgh takes 22.5 percent of the typical renter’s income, down from 28.4 percent historically. But a mortgage payment takes just 10.8 percent — thanks in part to low interest rates.

Source:  zillow.com

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Q&A: My Tenant Trashed My Rental. What Can I Do Better Next Time?

Mon, 12/04/2017 - 10:42am

Question:

I collected a $1,500 security deposit and from the looks of it that’s not going to cover the damages my tenants left behind. Rent is $1,500/mo, should I collect $3,000 next time or is this too much?

Answer:

A higher security deposit may make it harder for you to fill your vacancy – it depends on how competitive the rental market is in your area. Plus, in some states there are limits as to how much security deposit you can collect so increasing your security deposit might not even be an option. A full breakdown of security deposit maximums by state are listed at the bottom of this article.

However, there is another way for you to protect yourself that doesn’t involve charging a higher security deposit. After you screen a rental applicant on AAOA you or your applicant can purchase RentGuard so you can protect your rental. RentGuard starts at $299 annually for $2,500 of coverage. This not only covers damages a tenant leaves, it can also cover legal fees and lost rent. With coverage options up to $10,000 you’ll have substantially more protection than you get from a security deposit alone.

So how can you negotiate RentGuard with your tenants? Some landlords will purchase it to supplement the security deposit or others may slightly increase rent by $30-$50 each month to cover the cost of RentGuard. Others eliminate the security deposit completely and require RentGuard instead.

Either way you do it, you’ll keep your security deposit relatively low while greatly increasing your coverage.

If you have questions about using RentGuard please call the AAOA team at (866) 579-2262 or click here.

In addition to RentGuard, you may want to include quarterly or monthly inspections of the rental so you can catch damage before it worsens.

Below is a breakdown of security deposit maximums for your reference. Please note if N/A is marked in your state, check with you local city to see if the city has imposed any regulations.

STATE MAX SECURITY DEPOSIT Alabama 1 month’s rent (A landlord can also collect an additional deposit for pets, tenant alterations, or increase liability) Alaska 2 months’ rent, unless rent exceeds $2,000 per month. (A landlord can ask of an additional pet deposit). Arizona 1.5 month’s rent Arkansas 2 months’ rent California 2 months’ rent unfurnished, 3 month’s rent furnished Colorado N/A Connecticut 2 month’s rent, but if the tenant is 62 years of age or older than only 1 month’s rent Delaware 1 month’s rent for lease agreements for one year or more. For month-to-month agreements, there is no legal limit. Landlord’s may require an additional pet deposit. Florida N/A Georgia N/A Hawaii 1 month’s rent. May require an additional deposit of one month’s rent if the tenant has a pet. Nonrefundable fees are not allowed. Idaho N/A Illinois N/A Indiana N/A Iowa 2 month’s rent Kansas 1 month’s rent for unfurnished rentals; 1.5 month’s rent for furnished rentals. Kansas landlords may require an additional deposit of up to 1.5 month’s rent for pets. Kentucky N/A Louisiana N/A Maine 2 month’s rent Maryland 2 month’s rent Massachusetts 1 month’s rent Michigan 1.5 month’s rent Minnesota N/A Mississippi N/A Missouri 2 month’s rent Montana N/A Nebraska 1 month’s rent, 1.5 month’s rent for tenants with pets Nevada 3 month’s rent New Hampshire 1 month’s rent or $100 whichever is greater New Jersey 1.5 month’s rent, an additional deposit may be collected annually but may be no greater than 10% New Mexico 1 month’s rent for rental agreements less than a year; there is no state limit for rental agreement over one year New York N/A North Carolina 1.5 month’s rent on a month-to-month lease and equivalent to two month’s rent for a lease term longer than 2 months, and a reasonable non refundable pet deposit North Dakota 1 month’s rent. If a tenant has a pet the deposit should not exceed $2,500 or the equivalent of two month’s rent, whichever is greater Ohio N/A Oklahoma N/A Oregon N/A Pennsylvania 2 month’s rent during the first year of tenancy and 1 month’s rent after the first year. Rhode Island 1 month’s rent South Carolina N/A South Dakota 1 month’s rent Tennessee N/A Texas N/A Utah N/A Vermont N/A Virginia 2 month’s rent Washington N/A West Virginia N/A Wisconsin N/A Wyoming N/A

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How Well Do You Know Real Estate? Time to Find Out

Mon, 12/04/2017 - 8:27am

Real estate is an important component of the U.S. and global economies. For many Americans, homeownership doubles as a first investment. Beyond a primary residence, investors also can buy into the commercial real-estate market: Office buildings, multifamily housing, hospitals, parking lots, storage facilities, retail properties, call centers, distribution hubs, hotels and restaurants form a sector with its own economic ups and downs.

In 2016, the S&P 500 recognized real estate as its own sector, separating it from financial services where it had been buried for years—a move some view as a portent of more real-estate investment to come and that others view with indifference. Currently, real estate accounts for less than 5% of the S&P 500 by market cap.

How much do you know about real estate—and real-estate investing? Let’s start with a few basics (but we assure you, they will get harder).

1. How do investors participate in the real-estate sector?

A. Mutual funds and ETFs

B. Stocks

C. As direct owners/landlords

D. All of the above

ANSWER: D. Many investors inadvertently own real estate. Broad-themed mutual funds typically allocate a portion of their holdings to real estate. They own it directly, too, sometimes in the form of an exchange-traded fund. You can buy stock in home builders or REITs. You also can buy investment properties for income, and in some cases you can carry these properties within an IRA. Some argue that owning a primary home makes the average investor “overweight” in real estate, so portfolio allocations to real estate need not comprise a large percentage of holdings.

2. What is a REIT?

A. Real-estate investment trust

B. Real-estate investment tax

C. Real-estate insurance tariff

D. Real-estate investor trade

ANSWER: A. Real-estate investment trusts are investment vehicles that contain securitized portfolios of commercial properties such as office buildings, apartment buildings, retail sites, hotels, storage facilities, parking garages, data centers, even cannabis farms. You can buy shares (typically called units) in a REIT, or invest in REITs indirectly since REIT units are often found within mutual-fund portfolios or inside target-date funds.

3. True or false: Real estate is a countercyclical sector.

ANSWER: It depends. Real estate’s fortunes usually rise in a bullish economy, since indicators such as high employment and a strong regional economy can push up demand and prices for housing, office space, storage, retail and other categories of real estate. But some financial advisers and fund managers consider real estate “countercyclical” since it can zig when the rest of the economy zags. For example, even in a slow economy, consumers still need housing (they may opt to rent an apartment from a REIT, rather than buy a new home) and will continue to shop at retail outlets, pay for parking garages and storage facilities, etc.

4. Which commercial real-estate subsector is least prosperous now?

A. Multifamily housing

B. Industrial

C. Office

D. Retail

ANSWER: D. Retail real estate ranks last among six commercial categories both in terms of its investment and development prospects, according to a joint report on the 2018 commercial real-estate market from PricewaterhouseCoopers (PwC) and the Urban Land Institute. Headwinds in the retail category stem from department-store obsolescence, changes in apparel spending, consumer demographics and the impact of e-commerce and other technology on shopping experiences.

Now, some history questions:

5. What were typical residential mortgage terms before the creation of the Federal Housing Administration (FHA) and the Federal National Mortage Association (Fannie Mae) in the 1930s?

A. 3.5% down with a 30-year payoff

B. 20% down with a 20-year or 30-year payoff period

C. 50% down with a 10-year payoff

D. 0% down, interest-only loans with a 30-year payoff period

ANSWER: C. Before the creation of the FHA and Fannie Mae, it was hard for the average American to come up with a 50% down payment and then pay off the remaining 50% of a home’s value in only a decade; at that time, the homeownership rate was below 49% (versus the current rate of 63.9%, according to U.S. Census data). When the FHA and Fannie Mae were created, insurance against defaults became available to borrowers and banks loosened loan terms to 20% down with a longer payoff. ADDED, per your request:In the ensuing decades, borrowers could make much lower down payments—as little as 0% or 3.5%.

6. How did real estate contribute to the most recent financial crisis and related recession?

A. Lenders relaxed standards and underwrote loans that wouldn’t fly today

B. Banks knowingly and unknowingly sold mortgage securities containing unsound assets, and ratings firms failed to accurately rate real-estate debt sold to the secondary market

C. Investors speculated on housing and homeowners

D. All of the above

ANSWER: D. All of the above. You can read all about it in the Financial Crisis Inquiry Commission’s 2011 report. For a more fun look at what happened, watch the movie “The Big Short.”

7. During the real-estate bubble, which economist was known as “Dr. Doom”?

A. Robert Shiller, author of “Irrational Exuberance” and co-developer of the Case-Shiller Home Price Index

B. Nouriel Roubini, NYU professor, formerly an economist advising the White House Council of Economic Advisers

C. Karl Case, the late professor/researcher who co-developed the Case-Shiller Home Price Index

D. Ben Bernanke, former Fed chairman, now a Brookings Institution economist

ANSWER: B. Nouriel Roubini, a global macroeconomist, boasts the title “Dr. Doom” for his prognostications about the 2008 real-estate and credit-market meltdowns. He is predicting more economic drama.

And some market questions:

8. What foreign country’s investors are buying the most U.S. commercial real estate?

A. China

B. Canada

C. Germany

D. Japan

ANSWER: B. Canada, according to research from JLL Research and Real Capital Analytics. During the first half of 2017, Canada accounted for 30% of all foreign investment in U.S. commercial real estate, followed closely by China (21%), Singapore (15%) and Germany (7%).

9. What U.S. city has the lowest rate of apartment vacancy?

A. New York

B. Seattle

C. San Francisco

D. Boston

ANSWER: A.New York has a 1.9% vacancy rate, tightest in the U.S., followed by Boston (2.6%), San Francisco (2.8%), Los Angeles (2.9%), Seattle (3%) and Washington, D.C. (3.8%), says National Real Estate Investor.

10. Which commercial real-estate approach isn’t recommended in 2018?

A. Take advantage of demand for new housing

B. Bet on property price appreciation

C. Invest in “experiential retail”

D. Senior housing

ANSWER: B. Investors are advised to look at cash flow from income as a source of benefit rather than property-value appreciation, according to the PwC-Urban Land Institute report on commercial real estate. “Rent recoveries have matured in many markets and across property types. Cap rates have been compressed, but are leveling off,” the report says. “Appreciation is likely to be muted even in secondary and tertiary markets. That means focusing on cash flow and asset management in the immediate and midterm future.”

Source: wsj.com

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Proposed Tax Reform Threatens Affordable Housing

Mon, 12/04/2017 - 8:23am

A lot of apartment developers have reason to worry about the tax reform proposals working their way through Congress.

The plan to reform the federal tax code that passed the House of Representatives in November wipes out several tax credits that developers use to finance plan to build new projects—including the federal historic rehabilitation tax credit and the New Markets Tax Credit (NMTC). The House plan would also damage the most important program for new affordable development, the federal Low-Income Housing Tax Credit (LIHTC).

“With the nation already in the midst of an affordability crisis, undermining the LIHTC will deal a crippling blow to keep housing affordable and available for those citizens who are most in need,” said Granger MacDonald, chairman of the National Association of Home Builders (NAHB).

Tax reform slices into affordable housing programs

In most parts of the country, it costs too much to build a new house or apartment to rent that home or sell that home at a price that a minimum wage worker can afford—without help from government housing programs. In 2015, more than 11.1 million renter households paid more than half of their income on rent, up from 3.7 million in 2001, according to the State of the Nation’s Housing 2017 report from the Joint Center for Housing Studies at Harvard University.

The LIHTC program preserves or creates roughly 100,000 units of affordable housing a year. Both the tax reform plans being considered in the House and the Senate preserve better-known part of the LIHTC program—the “9 percent” tax credits, which state housing officials typically distribute to affordable housing developments every year in regular competitions. This is a “tremendous achievement for the affordable housing community,” according to industry accounting firm Novogradac, which has joined with housing advocates to educate legislators about the strengths of the program.

But the House tax reform proposal would end the private activity bond program, which allows housing finance agencies to issue low-interest, tax-exempt bonds that automatically generate 4 percent LIHTCs when the bonds are used to provide debt financing to build or preserve affordable rental housing.

Killing the bond program would cut the number of affordable apartments produced by the LIHTC program overall roughly in half, according to an analysis by the National Housing Conference (NHC). For developers like Signature Urban Properties and Monadnock, which is halfway through a 1,300-unit affordable housing and community revitalization project in the Bronx, N.Y. called Compass Residences, killing these bonds leaves a $100 million financing problem, according to NHC. Development plans like these could potentially collapse.

For-profit developers have also used tax-exempt bond loans and 4 percent LIHTCs to create buildings that mix new affordable housing with luxury apartments, especially in high-rise developments like New York City.

The proposal for tax reform in the Senate is more generous. “The Senate tax plan would, however, protect important provisions to boost the production of affordable housing, including the Low-Income Housing Tax Credit and the tax-exempt bond program,” said NAHB’s MacDonald.

The Senate bill also now includes a few of the ideas from the Affordable Housing Credit Improvement Act, legislation introduced in the Senate by Sens. Maria Cantwell (D-Wash.) and Senate Finance Committee Chairman Orrin Hatch (R-Utah). State officials could allow a LIHTC property 25 months rebuild after damage from disaster like fire, hurricane or flood without risking recapture, for example. However, the tax reform plan does not yet include the more expensive ideas from Cantwell-Hatch, like increasing the LIHTC program by 50 percent.

Historic rehabilitation tax credit wiped out

Developers who fix up historic buildings would also be hurt by the tax reform proposal in the House, which would repeal the historic rehabilitation tax credit after 2017. The U.S. Senate’s version of tax bill still includes a portion of the federal historic tax credit.

Many downtown redevelopments have depended on the historic tax credits.  Since its inception in 1978, the federal HTC has attracted $131 billion in private investment to the rehabilitation of 42,293 historic buildings, creating more than 2.4 million jobs. As a result of all this economic activity, these tax credit project have generated $29.8 billion in federal taxes. That’s more than the $25.2 billion cost of the tax credits, according a report by Rutgers University.

 

Source: nreionline.com

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The value of investing in foreclosed properties

Mon, 12/04/2017 - 8:20am

Real estate investors have long understood the positive impact of investing in foreclosed real estate and the resulting benefits of doing so. While the volume of foreclosed properties has returned to a level closer to pre-2008 norms, the market still contains approximately 600,000 foreclosed or bank-owned properties – each of which requires an investor to transform the property back into a home.

Previously, investors were often hindered by the difficulty of finding information relative to a foreclosed property, but as the auction process continues to move online, it becomes much easier for investors to find foreclosed properties that match their wants and allows them to gain access to information regarding the property through the same platform.

With the robust ability of an online real estate marketplace, like Auction.com, investors are more confident in investing in foreclosed real estate and as a result, better positioned to realize the benefits these investments bring much faster, which also stabilizes communities sooner.

The community impact of investing and reselling

The blight associated with foreclosed assets can permanently damage the quality of life for a community and its residents. As a practical example, until recently, most vacant homes were boarded up with plywood in attempt to deter vandals. This process, along with the lack of proper ongoing maintenance, resulted in an inevitable deterioration of the property. Whether wildlife living in unkempt yards, or vacant properties serving as havens for criminal activity, foreclosed properties have for too long threatened the long-term stability of local communities.

Foreclosed and vacant properties also tend to negatively impact local economies by creating new burdens on resources, such as police and fire departments. Additionally, as a property sits in foreclosure, the previous homeowner may fall behind on paying property taxes, which in turn puts a drain on emergency services and schools that rely on taxes for funding. If there are multiple foreclosed assets in an area, this issue is compounded exponentially.

In today’s market, many investors appreciate foreclosed properties’ value as investments because they are generally more affordable to obtain and later renovate for resale. Particularly when marketed on an online real estate marketplace, foreclosure properties are often easier to locate as a well-equipped platform maximizes the number of views a property receives, and is accompanied by valuable information about the properties’ condition, tax liens, etc.

What’s more, investors looking to resell foreclosed assets now have greater access to an ever-growing number of construction and rehabilitation contractors that can expedite the time needed to rehab a property and put it back on the market.

Perhaps most importantly, investing in (and rehabbing) a foreclosed property provides investors with an opportunity to generate a profit while also contributing to the health and stability of a neighborhood sooner. By investing in an existing home, the property value for both the home being renovated and the surrounding properties increases.

Finding additional income through renting

The American dream has long centered on the idea of home ownership. Today, that dream has expanded to include the possibility of owning multiple residential properties that can provide a second income. Investors look to gain the best ROI possible on an asset, and increasingly, that comes through the opportunity to build a portfolio of rental properties – ones that can generate regular income through rental and provide meaningful income tax deductions with relatively low-overhead required to manage those properties.

Rather than navigating the traditional foreclosure process to do so, investors who leverage an online platform like Auction.com can expect to benefit from the more optimal, streamlined and transparent experience that is offered. The online platform also contains property details, due diligence documents and property value information that enables an investor gain confidence to bid on a particular asset in auction.

In addition, investors who utilize the online platform are able to view multiple properties at once, saving time and shortening the period needed to ‘flip’ the property. While investors may initially pay for structural and cosmetic improvements, they ultimately benefit from the long-term return on that investment through renting.

In some cases, investors are finding renters in the form of the existing homeowner of the property. This strategy is preferable as it enables the bank to avoid the eviction process altogether while ensuring that the property remains occupied. The homeowner (now renter) benefits as he or she may now be able to more affordably stay in their home, providing additional peace of mind for the occupants as they no longer need to look for a new residence, and, if children are involved, transfer to new schools.

A positive impact on the community

A stable home is the cornerstone of a vibrant community and as such, it’s critically important to remain occupied in order to deter the risk of crime, contribute to the local tax base and mitigate blight commonly associated with vacant properties.

When investors choose foreclosed, vacant properties to rehabilitate, they are not only positioned to profit from the resell value or from rent from a resident, but they are active participants in making local communities safer. Even during the rehabilitation process, this is true. Criminals are keenly aware that investors retrofit their properties with security systems such as alarms, lights, cameras, etc. to closely monitor the grounds as construction ensues. This serves as an effective deterrent. When the project is complete, these systems may be left in place to give the new resident the same level of protection.

The key to success in saving America’s neighborhoods lies in leveraging technology and market intelligence to provide a marketplace, like Auction.com, where investors can confidently do business. The positive impact that investors generate when they work to convert foreclosed real estate can be profound. These properties, that a family once called home, gain a second chance at again becoming a home – perhaps even one that a family, and a community, will enjoy for generations.

 

Source: housingwire.com

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Where are America’s Most Satisfied Renters?

Mon, 12/04/2017 - 8:18am

Where exactly do renters most enjoy renting?  That’s the question that apartment rental site ABODO recently pondered as it sifted through reams of data form the 2015 American Housing Survey. In essence, they wanted to discover the cities where renters are the most satisfied (or not) with their homes.  There are some interesting data in here as well as some subjective findings open to debate.  Overall, it’s good insight into what’s driving renters’ decisions.

“…if our data has shown us anything, it’s that certain cities are more favorable renting environments than others. And it turns out that price isn’t the only factor — renters, like homeowners, care about quality. They care about local schools and public transportation; they want safe streets and clean sidewalks…”

 

Source: realestateinvestingtoday.com

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As The Tax Bill Is Finalized, Landlords Have Much At Stake

Mon, 12/04/2017 - 8:16am

As late Friday night gave way to early Saturday morning, the Senate floor was home to quite the celebratory scene. They were all there: Mitch McConnell and Orin Hatch, Rand Paul and John McCain, Randolph and Mortimer Duke, an army of Republican leaders doling out congratulations faster than corporate lobbyists can line pockets, lauding the passing of a bill that paves the way for the largest tax cuts in 31 years.

But don’t let the smiles fool you…the GOP’s work is not done. You see, the Senate’s passage of HR 1 by a 51-49 margin last Friday did not mark the end of the process; rather, the Senate bill must now be merged together with a companion bill that was crafted by and passed in the House several weeks earlier. The two chambers will soon break bread and try to agree on a final bill, which can then be sent to the President, who will formally tweet it into law.

While the GOP’s vision of tax reform is largely uniform between the House and Senate bills, there are some significant differences that will need to be ironed out. Here are a just a few of the items that will have to be reconciled:

House Senate Individual Tax Rates 4 brackets, top rate of 39.6% 7 brackets, top rate of 38.5% Child Tax Credit $1,600 $2,000 Medical Expense Deduction Eliminated Preserved Alimony Deduction Eliminated Preserved Education Incentives Eliminated Preserved Alternative Minimum Tax Eliminated Preserved, but with larger exemption Length of all Individual Changes Permanent Expire at the end of 2025 Individual Insurance Mandate Preserved Eliminated Estate Tax Repealed in 2023 Preserved, but with a doubled exemption Corporate Tax Rate 20% immediately 20% in 2019

Perhaps the most dramatic disparity, however, can be found in the way the respective bills treat the income of owners of S corporations and partnerships, so-called “flow through entities.”

Taxation of Flow-Through Entities, In General 

As a general rule, S corporations and partnerships (think: an LLC) do not pay tax at the business level. Instead, the income of the business is chopped up and allocated among its owners, who report the income and pay the corresponding tax on their individual returns at ordinary tax rates, which under current law rise as high as 39.6%.

To the contrary, so-called C corporations do pay tax at the business level, at a top rate of 35% under current law. C corporations are, quite famously, subject to “double taxation,” because after the corporation pays tax on its income when it’s earned, the shareholders will pay tax on the same income a second time when it is distributed to the shareholders as a dividend (at at top rate of 23.8%).

The foundation of both the House and Senate tax proposals has been to reduce the corporate tax from 35% to 20%. But you can’t do that without changing the treatment of pass-through businesses; after all, if you reduce the corporate rate to 20% but leave the income of S corporations and partnerships subject to tax at a top rate of 39.6% (or 38.5% in the case of the Senate bill), then the advantage previously afforded to flow-through entities relative to C corporations would be largely eliminated.

As a result, both the House and Senate bills attempt to confer a benefit on the owners of S corporations and partnerships in hopes of preserving the advantage they enjoy over C corporations. The two proposals address the issue in dramatically different ways, and based on an initial reading of the proposed legislation, a certain class of taxpayers could have a LOT at stake as Congress tried to determine which plan to adopt.

Who should be concerned? Owners of rental property who produce income, because the two proposals differ greatly in the way they treat so-called “passive income.” But before we can understand the difference, we’ve got to get a handle on who would be impacted.

So what is passive income? To answer the question, we’ve got to go back in time 31 years…

Pre-1986: Tax Shelters For Everyone!

Prior to the Tax Reform Act of 1986, tax shelters were readily available to anyone with disposable income and the patience to be a landlord. Consider the following example:

In 1985, A, a doctor, expects to earn wages of $300,000. On January 1, 1985, in hopes of sheltering his wage income, A purchases a home as a rental property and rents the home at fair market value. The rental is low-maintenance, and A is rarely required to visit the property other than to collect the occasional check. By virtue of large depreciation deductions, the rental generates a sizeable net loss, which A uses to partially offset his wage income, significantly lowering his tax bill. It is a win-win situation for A; he generates losses largely through non-cash depreciation deductions, while all the while, the rental home is appreciating in value.

Post-1986: No Rental Losses for Anyone!

The Tax Reform Act of 1986 put an end to such shelters, however, with the enactment of Section 469. Effective for tax years beginning after December 31, 1986, a taxpayer’s loss from a “passive activity” can only be used to offset income from a “passive activity.” A passive activity is defined in part as:

  1. Any trade or business of the taxpayer in which the taxpayer does not “materially participate,” and
  2. Any rental activity of the taxpayer regardless of the taxpayer’s level of participation.

As a result of the treatment of all rental activities as passive activities, the doctor’s loss in the previous example from his rental home would be treated as a passive loss. And because the doctor’s wages are not treated as passive income, the rental loss could no longer be used to offset the doctor’s wage income.

Fast Forward to 2018

As the example involving the doctor illustrates, historically, we’ve been primarily concerned with whether an activity is passive when the activity produces losses, because those passive losses can only be used to offset passive income. Come January 1, 2018, however, taxpayers with passive income — which as explained above, generally includes ALL RENTAL INCOME — could suddenly have a lot at stake, depending on whether the House or Senate bill governing pass-through income triumphs in reconciliation.

To understand the impact, let’s walk through a simply case study:

A owns 11 commercial properties together with another party, B. Each property is held in a separate LLC. In addition, A and B have formed a management company to oversee the 11 rental properties. Assume the following:

  1. A works 700 hours during the year, all in the management company. As a result, he will not qualify as a “real estate professional”, and all rental income will thus be passive.
  2. The 11 commercial properties produce a total of $2 million of annual rental income to A. The LLCs the properties are housed in pay no wages or guaranteed payments.
  3. The management company employs three people — a controller, an accountant, and an administrative assistant — who are paid annual wages totaling $200,000.
  4. The management company breaks even each year, recognizing neither taxable income nor loss.

Treatment of A under the House Bill 

The House version of HR 1 attempts to provide a benefit to the owners of S corporations and partnerships by providing that all “qualified business income” is eligible for a preferential top rate of 25%. That way, even with the C corporation rate coming down to 20%, owners of flow-through entities would retain their tax advantage by virtue of a top rate of 25%.

While there are no shortage of ways to fail to qualify for that preferential rate, the proposed law makes one thing very clear: “qualified business income” includes all passive income. As a result, the $2 million of income A receives from his 11 commercial properties will be taxed at a top rate of 25%, so that A will pay a total tax bill of $500,000 (ignoring the lower graduated rates and the 3.8% net investment income tax that applies to all passive income above a threshold). Not a bad deal, when you consider that under current law, the income would be taxed at a top rate of 39.6% and produce a tax bill of nearly $800,000. Thus, if the House bill becomes law, A would save nearly $300,000 in tax, relative to current law.

Treatment of A under the Senate Bill 

Things would look drastically different for A, however, should the Senate’s provision governing pass-through entities win out. The Senate proposal eschews a top tax rate in favor of a deduction; the owner of the pass-through entity would be entitled to deduct 23% of the income allocated to him or her from the business.

But there’s a catch. OK, to be fair, there’s many a catch under these rules, but the one we’re focused on right now is this: the owner of a pass-through business may only claim the 23% deduction up to a limit, equal to 50% of the W-2 wages (or partnership guaranteed payments) paid out by the business.

[Two notes on this deduction: the wage limitation does not apply if the business owner’s income is less than $250,000 (if single, $500,000 if married). In addition, owners of “personal service businesses” — i.e., accounting, law and consulting firms, among others — are not eligible for the 23% deduction unless income of the owner is less than $250,000 (if single, $500,000 if married.)]

The purpose of the limitation is to attempt to prevent an owner of a business from forgoing compensation for services in favor of additional flow-through income that will be eligible for the new deduction. Let’s leave A for a moment and consider this scenario:

Assume X is the sole owner and employee of an S corporation. He provides significant services. The S corporation earns $1,000,000 annually. If X withdraws the $1,000,000 as a salary to compensate him for his services, the wages are taxed at ordinary rates as high as 38.5% under the Senate proposal, generating a tax of $385,000.

Alternatively, to take advantage of the deduction offered by the Senate proposal, X could simply leave the $1,00,000 of income in the S corporation, to be taxed to X as “flow-through income.” Barring a safeguard measure, X would be entitled to a 23% deduction against the income, reducing his taxable income to $770,000 and his tax bill from $385,000 to $296,450, a significant savings.

The Senate proposal prevents such an abuse, however, by limiting X’s deduction to 50% of the wages paid by the S corporation. In the second scenario, because X takes no wages in an attempt to abuse the system, X runs afoul of the “50% of W-2 wages” limitation, and the Senate bill allows for no deduction. Thus, X’s flow-through income would remain $1,000,000 and his tax bill $385,000, just as it was when he withdrew the full $1,000,000 as wages.

With that understood, let’s go back to A, our well-to-do landlord. He has total rental income of $2,000,000, but his entities combine to pay out only $200,000 in W-2 wages; thus, the limitation looms large. Even worse, it appears the Senate bill looks at the wage limit on a business-by-business basis; as a result, because A’s only business that pays wages is the management company — which has no net income — he would not be entitled to a deduction against that income. He would also not be entitled to a 23% deduction against the $2,000,000 of rental income, because those separate LLCs pay neither wages nor guaranteed payments.

In summary, it appears that under the Senate bill, A would recognize $2,000,000 of passive rental income with no offsetting deduction, with the income taxed at the Senate’s top rate of 38.5%, resulting in a tax bill of $770,000. If you’re scoring at home — or even if you’re all alone — that would represent an increase of $270,000 over the’s $500,000 bill A had under the House version of HR 1.

Putting it all Together 

Could this be an accident? Or does the House bill purposefully cater to owners of rental properties by offering a no-questions-asked top rate of 25%, with the Senate bill doing just the opposite, making it nearly impossible for a rental owner to get the benefit of the 23% deduction by virtue of the fact that rental properties rarely pay wages or guaranteed payments?

The answer? Who knows. This process has been so rushed on both sides, it is completely reasonable to suspect that this is simply an oversight, and the two chambers will give the issue the careful consideration it deserves in the weeks to come. And if the President has anything to say about it — well, let’s just remember that he stands to save a fortune should the House bill win out, as it would give him a 25% rate on all of his passive rental income.

The treatment of a passive rental property owners is not the only hole that needs to be plugged in the treatment of flow-through entities, however. There is also potential for abuse under the Senate bill in the opposite scenario: an active owner of an S corporations or partnership that pays significant wages to non-owner employees.

Follow along:

Jerry X is the sole owner of America’s Team, a once-proud NFL franchise that has slowly devolved into a glorified three-ring circus. Shoot, that’s too obvious…let’s call him Mr. Jones, instead. Yeah, that’ll do it…

Anyway, Mr. Jones is a VERY hands on owner. The team is housed in an S corporation, and generates $20,000,000 of income for Jones annually, after deducting $60,000,000 in salaries to players and team personnel. Traditionally, Jones has paid himself a salary of $10,000,000 and withdrawn the remaining $10,000,000 as a distribution.

Assume the Senate bill and its 23% deduction triumphs and becomes law. If Mr. Jones does nothing different in 2018, his $10,000,000 salary will be taxed at ordinary rates of 38.5%, resulting in a tax liability of $3,850,000. Then, Mr. Jones will be entitled to a deduction of 23% against the $10,000,000 of flow-through income, leaving him with $7,700,000 of income and a tax bill of nearly $3,000,000 ($7,700,000 * 38.5%). Thus, total tax at the individual level would be $6,850,000. The deduction is allowed in full because the amount ($2,300,000) does not come close to hitting the limit of 50% of wages paid by the business ($30,000,000, or 50% of $60,000,000).

But what prevents Mr. Jones from saving himself a bundle of tax by skipping the salary in 2018 and taking the full $20,000,000 out as earnings and distributions? He would still be entitled to a deduction of 23% against the $20,000,000 of income — or $4,600,000– because again, that amount would not run afoul of the “50% of W-2 wages” limitation.

As a result, by virtue of the large salaries Mr. Jones pays to non-owners, he could convert salary taxed at ordinary rates into flow-through income eligible for a 23% deduction.

This column, of course, is just scratching the surface in identifying problems with this last-minute legislation. It’s been said before, but when you try to construct tax reform that is three decades in the making in the span of just four weeks, there will be some confusion. Some drafting orders. Some big, gaping loopholes just begging to be exploited.

 

Source: forbes.com

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