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Why Real Estate Syndication Is Important for Delaware Statutory Trust 1031 Exchange Real Estate Investors

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By The Editors
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Why Real Estate Syndication Is Important for Delaware Statutory Trust 1031 Exchange Real Estate Investors

By Matt McFarland
Vice President Kay Properties

Key Takeaways:

  • How does Delaware Statutory Trust Syndication benefit investors?
  • Why Real Estate Syndication via a DST can potentially reduce risk for investors*?
  • What is the Portfolio Optimization and Diversification Theory?
  • How real estate syndication and DST investments can help investors access larger real estate assets?

Delaware Statutory Trust 1031 exchanges have never been more popular, and one of the reasons behind this growth and investor appeal is the power and flexibility of real estate syndication. Real Estate syndication is a major underlying principle for how a Delaware Statutory Trust 1031 investment is structured, and why they continue to grow as an alternative investment for accredited investors.

“A lot of people still don’t know about the potential benefits of the 1031 DST syndication structure. Last year, we helped our clients complete more than $600 million of equity investments in these 1031 DST vehicles,” explained Dwight Kay, the founder and CEO of Kay Properties who is a prolific author on the subject including authoring multiple white papers and what some consider to be the first book ever published on the subject.

What is Syndication and How Does it Work within the Real Estate Investment Arena

Generally speaking, syndication is the process of organizing a group of individual investors or an organization for the purpose of collectively investing in an asset that requires a significant amount of capital. When applied to the world of real estate investments, syndication refers to the process of organizing a collection of investors to combine their financial resources in order to purchase one or more real estate assets. Real estate syndication means investors are issued beneficial interests or shares of real estate. Profits and losses are usually split according to their respective percentage ownership interests.

The concept of syndication is especially relevant when discussing Delaware Statutory Trusts because not only do DSTs qualify for 1031 exchanges as outlined in Revenue Ruling 2004-86 of the Internal Revenue Code Traditional 1031 exchanges often involve a sole investor exchanging investment real estate into another like-kind real estate asset. A Delaware Statutory Trust 1031 exchange allows multiple investors to own real estate for their 1031 exchange or cash investments. In addition, unlike other group investment structures such as Tenant in commons (TICs) which limit the number of investors to 35, DSTs allow for a much higher number of investors (typically up to 499 investors), creating an ideal choice for investors who want to access larger and potentially more diverse real estate assets.

What are the Benefits of a Delaware Statutory Trust Syndication?

Benefit #1: Passive Ownership

One of the most attractive aspects of DST 1031 exchange investments to many investors is that they eliminate the challenges associated with active ownership and management. In DST investments, a sponsor creates the DST and has the responsibility of managing the entire business and assets of the trust. These responsibilities can include the following:

  • Underwriting the real estate deal
  • Conducting all the due diligence on the property (ies)
  • Arranging the necessary financing – although some DST 1031 investments are debt free with no loans on them
  • Creating a business plan for the property (ies)
  • Finding a property management team.
  • Coordinating investor relations and potential monthly distribution checks to investors.

In this way, the Delaware Statutory Trust syndication provides investors a passive ownership structure.

According to Kay, in exchange for giving up active management, the passive investor of a DST 1031 property will typically receive 100 percent of the pro-rata portion of any potential principal pay-down from the loan on the property, thereby potentially building equity. In addition, DST 1031 properties are structured so that the investors in the DST receive 100 percent of their pro-rata portion of the potential rental income generated by the property’s tenants.

“Furthermore, although appreciation is never guaranteed, DST 1031 investors receive 100 percent of their pro-rata portion of any potential net appreciation of the property over the hold period,” said Kay.

Benefit #2: Access to Larger, Institutional Grade Assets

Another attractive element for investors of syndicated Delaware Statutory Trust 1031 exchanges is that they provide investors within the trust the opportunity to access large, institutional grade real estate assets that would otherwise potentially be outside of an individual investor’s price point. With a typical investment minimum investment of $100,000, individual investors in a DST can purchase an ownership interest in large industrial distribution centers, medical buildings, self-storage facilities, and even large $50 million-plus apartment communities. In this way, the syndication structure of Delaware Statutory Trust 1031 exchanges allows investors to access a level of real estate that they oftentimes would not have been able to buy before.

Benefit #3: The Potential to Reduce Risk Through Greater Diversification*

A third advantage of the Delaware Statutory Trust syndication structure compared to a normal 1031 exchange is that it increases the ability of investors to invest in multiple properties, thus potentially reducing individual risk. Beyond the ability to allow investors to participate in multiple investment properties, DST syndications also allow investors to invest in multiple asset classes (multifamily, commercial buildings, self-storage, medical facilities, industrial distribution centers, etc.) as well as in multiple geographic locations. Portfolio optimization and diversification was first recognized by Nobel-Prize winning economist Harry Markowitz, and continues to be one of the most proven economic theories for success today, including its application in Delaware Statutory Trust 1031 exchanges. * It is important to note however that diversification does not guarantee profits or protection against losses and that investors should read each DST offerings Private Placement Memorandum (PPM) paying attention to the risk factors prior to considering a DST investment.

Obviously, as with all forms of real estate investments, there is an underlying level of risk that investors should be aware of including things like economic downturns, vacancies, tenant repairs, etc.  Investors should not invest in DST investments or real estate syndications if they are unable to sustain the loss of their invested principal.

Benefit #4: Ability to Work with and Learn from Syndication Experts

Commercial real estate investing requires years of experience and lots of resources. Even for experienced investors, the ability to source, inspect, underwrite, and close on large institutional properties within a 1031 exchange timeline is often beyond their reach. However, for Delaware Statutory Trust syndications, the investor can work with highly specialized team members at Kay Properties & Investments. Kay Properties is a national Delaware Statutory Trust expert advisory firm. They have created the www.kpi1031.com platform that provides investors access to the marketplace of DSTs from more than 25 different DST sponsor companies. In addition, they have custom DSTs available only to Kay Properties clients and provide investors independent advice on DST sponsor companies as well as full due diligence and vetting on each DST investment.

About Kay Properties and www.kpi1031.com

Kay Properties is a national Delaware Statutory Trust (DST) investment firm. The www.kpi1031.com platform provides access to the marketplace of DSTs from over 25 different sponsor companies, custom DSTs only available to Kay clients, independent advice on DST sponsor companies, full due diligence and vetting on each DST (typically 20-40 DSTs) and a DST secondary market.  Kay Properties team members collectively have over 150 years of real estate experience, are licensed in all 50 states, and have participated in over $30 Billion of DST 1031 investments.

This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying special attention to the risk section prior investing.  IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation.  There are material risks associated with investing in real estate securities including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed.

Ask Bill Exeter

Ask Bill Exeter and his team your questions about 1031 exchanges and he and his team will get back to you.

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Nothing contained on this website constitutes tax, legal, insurance or investment advice, nor does it constitute a solicitation or an offer to buy or sell any security or other financial instrument. Securities offered through FNEX Capital , member FINRA, SIPC.

About the Author:

Why Real Estate Syndication Is Important for Delaware Statutory Trust 1031 Exchange Real Estate Investors
Matthew McFarland

Matthew McFarland is vice president and DST 1031 specialist with Kay Properties & Investments, where he works out of the Kay Properties’ headquarters in Los Angeles, helping clients with their 1031 exchanges and direct investments.

Prior to joining Kay Properties, Matt worked at a national commercial real estate tenant representation firm where he helped national firms find Class A and Class B space in commercial office, industrial, and flex spaces throughout Southern California.

Since joining Kay Properties, Matt has participated in over 1,000 transactions and over $6 Billion worth of real estate. Matt works hand in hand with all the Kay Properties’’ Senior Vice Presidents, educating clients on what particular investments make sense for their situation.

A graduate of the University of California, Los Angeles, Matt holds a Bachelor of Science in Physiological Science from the UCLA Department of Integrative Biology and Physiology.

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14 Reasons Rent Control Hurts Housing, Respected Economist Says

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By The Editors
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Respected economist Jay Parsons says science and history show why rent control does not work and hurts the affordability of rental housing

Respected economist Jay Parsons says science and history show why rent control does not work and hurts the affordability of rental housing.

In a long Twitter thread, Parsons says, “Lots of articles of late are saying things like ‘rent control remains rare due to landlord opposition.’ This is very misleading. Sure, landlords oppose it. But who cares? More importantly: The SCIENCE of economics opposes rent control. And history, too.

“It’s disingenuous to say, ‘landlords argue rent control reduces supply and backfires on low-income households.’ Science and history show us the facts, and that’s more important than whatever landlords say,” Parsons explains. You can follow him on twitter @jayparsons. Here is what Parsons writes:

  1. Rent control is rare because history shows us it doesn’t work as intended. Rent control is a short-term fix for current residents, at expense of long-term affordability for a much broader population. This from a Stanford economist.
  2. You might argue: We’ll exempt new construction from rent control, so it’s OK! But the science says otherwise.
  3. The science of economics also tells us that rent controls not only limit new supply, but also lead to removal of existing supply, New York being a case in point.
  4. That science also tells us that rent control provides benefit to a share of households but at enormous cost, one being inability to fund maintenance. Rent control often leads to poorly maintained, outdated housing — and battles between tenants and landlords over upkeep.
  5. One important note that is often overlooked: Rent control primarily benefits wealthier households who do not need the benefit. Case in point: Former NYC Mayor Ed Koch for decades kept a $475-a-month bargain in high-end Greenwich Village, which meant he (and many others) received benefits others need more — which means wealthier households are either squatting in affordable units or squandering benefits that could otherwise be spent on lower-income households in need.
  6. Historically, price controls in the United States were associated with the Soviet Union– which made it a “red flag” for many Americans. For Soviets, price controls led to severe supply shortages, a runaway black market and depression… but three decades later, memories and lessons are fading.
  7. Rent-control proponents point to Europe as models, but fail to point out the resulting disaster of a supply shortage. Read this quote from an economist in Sweden: “Five percent of the entire population is on a waiting list for a rental.” Wow!
  8. In Toronto, rent controls sharply reduced new construction to only pricey units and gave way to a surge in for-sale condos as “shadow” alternatives, bought by small investors and rented out individually, ultimately making affordability worse.
  9. In Cambridge, Mass., research showed the city benefitted from the removal of rent controls in the 1990s. A Harvard professor noted more supply, more maintenance/upgrades, and less crime.
  10. In an IMG survey of economists, only two percent said rent controls in places like New York and San Francisco have had a positive impact on affordable housing.
  11. Opposition to rent control is not a partisan issue. Economists on both sides of the aisle oppose it, from right-wing Milton Friedman to left-wing Gunnar Myrdal (both Nobel winners).
  12. Myrdal stated: “Rent control has in certain Western countries constituted, maybe, the worst example of poor planning by governments lacking courage and vision.”
  13. The science of economics tells us the best solution to affordable housing is supply. Harvard’s Ed Glaeser: “The most natural tool towards affordability is supply, and to make sure that we are making it easy enough to build moderate-cost rental-apartment buildings in these cities.” But not ironically, most cities with rent control or that are seriously discussing it are themselves guilty of making it way too difficult to build housing– which makes what does get through more expensive.
  14. Direct subsidies to lower-income renters are also effective in solving housing access issues without distorting supply, yet they’re underfunded at every level and too often entangled in red tape.

In summary, Parsons says, “Rents have kept up with incomes in market-rate apartments, which is why rent control is mostly a misallocation of resources to wrong households. The root problem is underfunding and undersupply of affordable housing by governments at every level.”

Respected economist Jay Parsons says science and history show why rent control does not work and hurts the affordability of rental housing

About the author:

Jay Parsons serves as vice president and head of economics and industry principals for RealPage. He is a frequent author and speaker on topics including rental housing investment and asset management strategy, rental housing policy issues, risk management and property management – covering apartments and single-family rentals.

Blog: Respected Economist Takes Down Rent Control

National Rent Growth Picking Up Steam After Winter Cooldown

By
John Triplett
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Even though rents are growing more slowly than in 2021, national rent growth was picking up in March as rents were up 0.8 percent over the previous month, according to the latest report from Apartment List.

Even though rents are growing more slowly than in 2021, national rent growth was picking up in March as rents were up 0.8 percent over the previous month, according to the latest report from Apartment List.

Over the first three months of 2022, rents have increased by a total of 1.8 percent, “but we’re just beginning to enter the busy season for the rental market, when the bulk of annual rent growth typically occurs,” write  Chris Salviati, Igor Popov, Rob Warnock, and Lilla Szini in the April report.

Rent growth has slowed down notably since last summer, “but it still appears that we’re on track for another year of above-average growth.”

Even though rents are growing more slowly than in 2021, national rent growth was picking up in March as rents were up 0.8 percent over the previous month, according to the latest report from Apartment List.

With the exception of December, rents continued to trend upward through the winter slow season, and “growth is now accelerating as we enter the spring and summer months, when rental activity is normally at its peak. Even if prices don’t rise as rapidly as they did in 2021, we’re already seeing signs that this year will continue to bring rent growth well in excess of the pre-pandemic trend,” the report says.

Even though rents are growing more slowly than in 2021, national rent growth was picking up in March as rents were up 0.8 percent over the previous month, according to the latest report from Apartment List.

Vacancy rate continues upward

The vacancy index shows that rental market tightness is continuing to ease.

“Our vacancy index has now slowly ticked up for seven consecutive months and currently stands at 4.6 percent.

“Although the recent vacancy increase has been modest and gradual, it represents an important inflection point, signaling that tightness in the rental market is finally beginning to ease. However, the vacancy situation still remains historically tight.

“Over the past seven months, our vacancy index has been increasing by an average of 0.1 percent per month. If that pace continues, we won’t hit a vacancy rate of 6 percent – the pre-pandemic norm – until next summer. Nonetheless, the gradual increase in vacancies in recent months has likely been contributing to the slowdown in rent growth,” the report says.

Summary

“As we enter the spring and summer months, rental activity is likely to pick up, and rent growth is likely to accelerate.

Despite a recent cool-down, many American renters are likely to remain burdened throughout 2022 by historically high housing costs,” the report says.

Read the full report here.

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Key Components of Effective Communication with Residents

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By The Editors
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Key Components of Effective Communication with Residents

Here are some of the key components of effective communication with residents when there is such a wide variety of multifamily communication channels.

By Kristina Rauscher

Having an effective communication plan for on-site property teams to implement when it comes to communicating with residents is paramount.

Yet, with such a wide variety of communication channels – as well as individuals’ preferred styles of communication – it can be difficult to implement a plan that will reach the highest level of engagement. The key to effective resident communication lies in having a well-balanced blend of digital, in-person and traditional grassroots communication.

By mixing these communication styles, multifamily property managers can communicate effectively with their residents. Communication styles can include e-blasts, social media posts, paper flyers and text messages.

Email Blasts

 Email blasts can be sent by using features of your CRM system (as Yardi RentCafé offers), or by using a third-party software (such as Mailchimp), giving companies the ability to send a single email message to multiple recipients at the same time.

Sending an e-blast is an effective way to send a large sum of information to a large group of people in a timely manner. While e-blasts lack customizable features specific to each recipient, they can be an effective way to communicate when rent is due, to communicate about issues and updates regarding parking and maintenance, community events and even host potential giveaways.

It is important to ensure residents add the sender of emails to their contacts, as e-blasts can often be marked as spam. E-blast software systems offer tools to create templates that property managers can adjust and edit with ease, depending on when the announcement is going out.

Social Media Posts

 Social media posts are an effective way to communicate with current and prospective residents, as they can be used to share a vast amount of information – including leasing updates, community events, and resident profiles – and the leasing office’s hours, announce giveaways and contests, and much more.

It’s recommended that multifamily accounts pose questions and calls-to-action to boost engagement with its targeted audience. For example, you may ask a question within a caption to prompt residents to “comment below.” Or on apps like Instagram, you can use its features such as stories and reels to engage with your target audience outside of the standard post.

One of Instagram’s newest features is guides, which communities could leverage to showcase amenities, features within the various floorplans, places to eat and things to do around the community, standard move-in checklists and more.

Paper Flyers

 Paper flyers can be an effective way to communicate with residents who may not be active online.

Flyers can easily be placed outside of residents’ doors, under their doors, on community boards or in their mailboxes. By distributing flyers in every mailbox or room, managers can ensure the information is being seen by everyone.

They can also be helpful for residents who hang them on their fridges to remind them of upcoming due dates for rent, amenity closures, community cleanings or reminders to renew. You can kick it up a notch by offering a goodie bag or treat along with the flyer. Whether it’s thanking them for being a resident or getting their attention for an upcoming event, adding this personalized touch to multifamily communication has been proven to be effective and well-received.

Text Messages

 SMS blast reminders can be another effective way to communicate with residents, as they reach the residents’ phones.

P.B. Bell uses its CRM software, Yardi RentCafé to effectively implement this strategy, but there are other third-party services that offer this feature if your CRM doesn’t have these capabilities.

SMS blasts can be great for communicating last-minute announcements. However, if messages are sent too often or are too long, residents can block the number they are coming from, so use this tactic wisely. With that being said, it’s important to provide residents the ability to opt into and out of texts. Keep your messages short and sweet, including only the most important information.

There are multiple communication channels to use with multifamily residents, but the most effective approach is to use all of them for different means in order to communicate with residents at the right time. Effective communication with residents is crucial because it allows residents to know what is going on in their community and can encourage people to re-sign, or sign in the future.

About the author

Key Components of Effective Communication with Residents
Kristina Rauscher

Kristina Rauscher is marketing director at P.B. Bell, where she leads corporate marketing initiatives and communications while strategically planning marketing efforts for the P.B. Bell portfolio. Her skills and duties include branding, creative direction, digital marketing, advertising, public relations, outreach marketing, and events.

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Watch Out, Investors! California is At It Again

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By The Editors
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The California Housing Speculation Act, AB 1771, would create a sliding scale of capital gains tax levies on anyone selling a home over a 7-year period

By Kim Lisa Taylor

We’re watching with interest and concern as Assembly Bill 1771 works its way through the California Legislature. Dubbed “The California Housing Speculation Act,” the bill would create a sliding scale of capital gains tax levies on anyone selling a home over a seven-year period, starting with a 25 percent tax from a home sale within 3 years of its purchase, decreasing by 5% annually thereafter until the tax is zero after the property has been held > 7 years.

A recent story in the Los Angeles Times says the aim of AB 1771 is to discourage real estate speculation that bill sponsor Assemblymember Chris Ward (D-San Diego) blames for driving up home prices as equity investors outbid individual home buyers. But opponents of the bill say it could hurt consumer home buyers as well and deprive them of income many might need when an unexpected circumstance such as divorce or a family death forces them to sell during the 7-year taxable period.

Investor advocacy groups such as the American Association of Private Lenders (AAPL) point out there is no carve-out or exemption for fix-and-flippers “who perform valuable services by rehabilitating sub-standard housing stock.”

Others predict the bill would have the unintended impact of worsening an already dramatic housing shortage by causing move-up buyers to remain in their homes longer.

All investors would be subject to the Act, according to AAPL, which has a fact sheet you can read by clicking here.

As of this writing the proposed legislation has been re-referred to the Committee on Revenue and Tax. Bill sponsor Ward says he is open to suggestions on how to reframe the legislation to keep the focus on closing “loopholes for large corporations to continue speculation activity” but not penalizing traditional homeowners.

You can read the bill text by clicking here.

About the Author:

The California Housing Speculation Act would create a sliding scale of capital gains tax levies on anyone selling a home over a 7-year period
Kim Lisa Taylor

Kim Lisa Taylor is the founding attorney of Syndication Attorneys, PLLC, a boutique corporate securities law firm that helps clients nationwide with their federal real estate securities offerings. She has been licensed in California since 2002 and in Florida since 2012 and has made securities transactional law the focus of her practice since 2008. The firm employs additional of-counsel attorneys as well as other support staff. You can schedule an appointment at our website, www.syndicationattorneys.com.

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How Much Apartment Space Can a Tenant Get for $1,500 a Month?

By
John Triplett
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How Much Apartment Space Can a Tenant Get for $1,500 a Month?

Cities in the South and Midwest offer tenants the most apartment space for the money, with Wichita, Kansas leading the list of cities where you can rent the largest apartments on a budget of $1,500, RentCafe says in a new study.

“We analyzed apartment rent prices and apartment sizes from sister company Yardi Matrix in the 100 largest U.S. cities,” RentCafe says in the report.

Urban areas on the coasts typically offer much smaller space for higher rent amounts.

Here is what $1,500 will get for a tenant in some areas:

  • Wichita leads the list of the largest apartments for the given amount. Renters there can get 1,597 square feet, which is the equivalent of a four-bedroom apartment.
  • At the other end of the spectrum are the coastal cities, where 11 California cities made it in the Top 20 with the least apartment space on this budget. In San Francisco, $1,500 can get 345 sq. ft. while in Manhattan, this amount is not even enough for 300 sq. ft.
  • At the very middle of the Top 100 is Dallas, at No. 50 with an average apartment size of 881 sq. ft. for $1,500. “That’s slightly larger than the average one-bedroom apartment, and we’ve even seen two-bedroom ones at this size,” the report says.
  • Suburbs surrounding large metro areas offer the most space for the given budget.
  • Certain states count several cities in the top 20 with the largest apartment sizes for $1,500. Texas is represented by Lubbock, El Paso, and Corpus Christi. Meanwhile, Oklahoma’s Tulsa and Oklahoma City rank 3rd and 4th, respectively. Ohio has Toledo and Columbus.

Cities in the South and Midwest offer tenants the most apartment space for the money, with Wichita, Kansas leading the list of cities
Cities in the South and Midwest offer tenants the most apartment space for the money, with Wichita, Kansas leading the list of cities

Methodology

RentCafé is a nationwide apartment search website that enables renters to easily find apartments and houses for rent throughout the United States. The apartment space you can rent for a monthly budget of $1,500 was calculated using price per square foot derived from the average rents and average size of apartments by city, in multifamily properties of 50 or more units, using Yardi Matrix data.

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What Is Best Approach for Operating and Managing a Rental Property?

By
Hank Rossi
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A landlord asking what is the best approach for operating and managing a rental property is the question this week for Ask Landlord Hank.

A landlord asking what is the best approach for operating and managing a rental property is the question this week for Ask Landlord Hank. Remember Hank is not an attorney and he is not offering legal advice. If you have a question for him please fill out the form below.

Hi Hank:

I purchased a two-family home in Massachusetts with my sister in 2018. She lives upstairs on the second floor, I lived on the first. My wife and I moved out in 2021 and have been renting out the first floor of the two-family home. My sister has intentions to move out soon too, and eventually the home will be fully rented out and no longer be owner-occupied, along with generating additional income for both of us.

My question is, what is the best approach as to operating/managing the property? Currently the title/mortgage is in both our names. We have an agreement on roles we each have and responsibilities that get divided between the two of us. However, should we start an LLC? I’ve also heard of doing a family trust? Are there any tax benefits or perhaps an easier/more organized way of doing business? What we’re doing now works (we think)…

Thank you

-Kevin

 Hi Landlord Kevin,

Family business, just like any partnership, has strengths and drawbacks.

There is strength in numbers – being able to divide the workload, being available for management, maintenance and emergencies.

The drawback is that since there are two “bosses,” then you both have to be on the same page as far as business philosophy, and keep the dialogue with the tenants straight. If you were each going to manage your own units that may be the easiest, but if one of you likes to do management and the other maintenance or some other division of labor, that could work well too.

The nice thing is that right now all should be relatively simple since you have two units at the same address and you are intimately familiar with them. As far as LLC or S-corp, it’s nice to put your property there for limiting personal liability. These entities are easy to set up too. I would talk to a tax professional to see if one form is more advantageous to your unique situation. Good luck!

Sincerely,

Hank Rossi

www.rentsrq.com
Each week I answer questions from landlords and property managers across the country in my “Dear Landlord Hank” blog in the digital magazine Rental Housing Journal.    https://rentalhousingjournal.com/asklandlordhank/

Ask Landlord Hank - What Is Best Approach for Operating and Managing a Rental Property?
Landlord Hank says, “If you were each going to manage your own units that may be the easiest, but if one of you likes to do management and the other maintenance or some other division of labor, that could work well too.”

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ADA, HUD, the Fair Housing Act: Which One Applies to Housing and Support Animals?

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By The Editors
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ADA, HUD, the Fair Housing Act: Which One Applies to Housing and Support Animals and service animal

With many different laws governing service animals, it can be confusing as to which ones apply to housing providers and what questions they are allowed to ask. This article will review the different laws that come into play, highlight which ones directly affect housing providers, and share tips to help you navigate this sometimes confusing process.

By The Fair Housing Institute

Does the ADA Law Apply to Housing?

Even though the Americans with Disabilities Act is very important, it doesn’t apply to housing except for maybe the leasing office, as it is a public place. Generally, ADA laws apply to operators of public places, such as Target. The ADA also limits the types of animals providing support to dogs or, in rare cases, miniature horses, which we are not allowed to do as housing providers.

This is where some confusion can take place. The ADA limits what business owners can ask regarding the animal to: “Is that a trained service dog?” and “What work is the animal trained to do?” They are not allowed to ask for written verification.

So when housing providers ask for verification of need, often they are met with the resident referencing this law and stating that they do not need to provide proof of need. This leaves us with the task of informing them that this applies under the American Disabilities Act, but the ADA does not pertain to housing and that the Fair Housing Act permits verification when the disability and the need for the animal are not observable.

For example, if you can see that the animal is a guide dog, then you shouldn’t be asking for verification. But if it’s a dog that is a service animal for disabilities such as hearing problems or to alert someone that they’re about to have a seizure, you can’t see that when you talk to the resident. In that case, you can ask for verification. And if they say to you that’s not permitted, then you have to clarify: “I’m asking you this not under the Americans with Disabilities Act, but under the Fair Housing Act.”

HUD and Support Animals

HUD defines support animals that do work, perform tasks, provide assistance, or provide therapeutic emotional support for individuals with disabilities.

HUD also clarifies the difference between domesticated animals kept in the home (traditional) and non-traditional unique animals such as goats, pigs, chickens, snakes, etc. HUD states that the resident has a substantial burden to be able to show that they need a unique animal as an assistance animal. Now, it is not impossible to justify a unique animal. Still, a resident is going to have to explain in more detail than with a usual animal why they need their snake as an emotional support animal.

HUD also addresses multiple animal requests, again placing the burden of proof on the verifier as to why one animal isn’t enough. HUD has also made it very clear that going online and getting your pet registered or certified on some website by paying money is irrelevant to the question of whether this is an assistance animal that should be approved to live in housing as a reasonable accommodation. If someone hands you one of those registrations or online certifications, you can hand it back to the resident and let them know that it is not adequate to verify their need for an assistance animal.

HUD has made it very clear it considers those websites as taking advantage of people— wasting their money—because those registrations are irrelevant to the question of whether you approve their reasonable accommodation or not.

The Fair Housing Act and Reasonable Accommodations

We have discussed how the ADA—while important—does not apply to housing, and we reviewed HUD guidelines that create the framework for how housing providers should view assistance animals and the questions they are allowed to ask. But how does that come together with the Fair Housing Act?

When we look at the Fair Housing Act and Section 504, we don’t care whether an animal is a service animal or an emotional support animal. It doesn’t matter; we don’t need to ask different questions. We only want to know if the resident is disabled, meets the definition of disability, and if that animal is necessary to assist them because of their disability. That’s all you need to be concerned with when you’re verifying a request for a reasonable accommodation.

When your property is looking at a request for an assistance animal, you need to have a very detailed procedure that all staff members follow. First of all, the process should be done in writing, complete with a section for the verifier. To be a reliable verifier, the verifier has to have personal knowledge about the resident and should be providing the resident with medical or mental health services, and not merely providing a verification letter or filling out a form.

Suppose you find yourself in the situation of turning someone down because you don’t think their verification is reliable. In that case, you need to conduct a meeting explaining why you are not going to accept or grant their request and attempt to resolve their request; of course, documenting everything along the way.

Fair Housing and Assistance Animals Final Takeaway

As we have discussed, there can be a few pitfalls to understanding the different laws that come into play regarding assistance animals and housing. Regular training is essential to help everyone know which laws apply and how to follow them to ensure fair housing compliance.

About the author:

In 2005, The Fair Housing Institute was founded as a company with one goal: to provide educational and entertaining fair-housing compliance training at an affordable price at the click of a button.

HUD Settles with Landlord, Property Manager Over Assistance Animal

Emotional Support Animals and the Fair Housing Act

Everything Landlords Should Know About Emotional Support Animals

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Landlord Charged With Sexually Harassing Female Tenant

By
John Triplett
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Landlord Charged With Sexually Harassing Female Tenant

The U.S. Department of Housing and Urban Development (HUD) has charged Nedzad Ukejnovic, the owner of multiple single-family residences in the St. Louis area of Missouri, with discrimination for allegedly subjecting a female tenant to sexual harassment, according to a release.

The HUD charge alleges the landlord made requests of the female tenant, “including requests for sexual favors in exchange for reduced rent, and discriminatory statements based on sex.”

This case’s ‘single mom falls behind on rent’ story is real common with our sexual harassment cases,” said Glenn Burleigh, spokesman for the Metropolitan St. Louis Equal Housing and Opportunity Council, or EHOC, by text message to the St. Louis Post-Dispatch.

The Fair Housing Act prohibits sexual harassment of tenants and other forms of housing discrimination based on race, sex, color, national origin, disability, religion and familial status.

“No one should have to submit to unwelcome sexual advances or tolerate sexual harassment to keep their home, a place where a person should feel safest,” said Demetria L. McCain, HUD’s principal deputy assistant secretary for fair housing and equal opportunity, in the release. The “charge sends a clear message to all landlords that HUD is committed to taking action against landlords whose behavior violates the Fair Housing Act.”

“The intolerable and deplorable conduct alleged in this case constitutes sexual harassment that violates the Fair Housing Act,” said Damon Smith, HUD’s General Counsel, in the release. “HUD is steadfastly committed to protecting the rights of tenants to be free from such harassment by their landlords.”

HUD’s charge, issued on behalf of the tenant, alleges that Ukejnovic “made repeated unwelcome sexual advances toward the tenant and pressured her to provide sexual favors and explicit photos of herself when she fell behind on rent payments.”

The charge further alleges “Ukejnovic’s actions included grabbing the tenant’s body without permission, pressing his body against hers, offering to accept sexual favors in lieu of rent, making unwanted sexual comments, and sending lewd and inappropriate texts to her. The tenant and her children moved out after enduring months of sexual harassment from Ukejnovic.”

HUD is asking for unspecified monetary damages for the tenant, as well as assessment of a civil penalty against Ukejnovic for each of four violations of the Fair Housing Act.

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Multiple Tenants On Lease: Can One Bad Applicant Spoil the Whole Bunch?

By
By The Editors
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Multiple Tenants On Lease: Can One Bad Applicant Spoil the Whole Bunch?

As rents increase more rental properties are being shared by more than one tenant, so here are three questions to answer before you sign with multiple tenants on the lease.

By David Pickron

It might seem like an antiquated phrase since most of us no longer buy apples in bulk, but the concerns about one bad apple spoiling the whole bunch are real.

As it applies to our industry, this is becoming a critical issue.  Here’s why: With the rapid increase in rents over the past few years, more and more of our properties are being shared by more than one tenant in an effort to be able to just afford the rent.

In most cases as we backtrack, having more than one tenant would equate to having more than one applicant for the lease.  And when you have more than one tenant potentially on the lease, there are three major questions you need to answer before signing that lease.

Question 1: Will I Get my Rent?    

Logically, it is easy to assume that having more tenants in the property would up the odds that you are going to get paid in full and on-time.

More people and more income should add up in the landlord’s favor, but that isn’t always true.  Proper screening, including criminal, civil and credit checks, is critical if you want to protect your investment.  Let’s consider that you have three individuals who are friends apply to rent your property.  They each complete an application and upon review, you find that one of them has a history of evictions, has credit below the standard you normally require for this property, and is currently unemployed.  What do you do?

You have a few options and things to consider.  How is the credit and eviction history of the other applicants?  How long ago was the eviction for the affected applicant?  Was it affected by COVID or other outside circumstances?  What kind of history does the applicant have with the other applicants who have good credit?  In essence, you have to rely on your criteria and your calculated trust in the other applicants on the lease to pull through with payments, even when or if the poorly qualified tenant can’t fulfill his portion of the lease payment.  This by far is the easiest of the three questions to answer because the additional tenants can always help carry the payments if needed.  The next question is much more difficult as it deals with the complexities of personality and behavior.

Question 2: Will My Property be Taken Care Of?

This question is where a careful review and analysis of each applicant’s criminal history is critical in ensuring the value of your property.

It’s been said that we become the sum of the five people we spend the most time with.  If one or more of your applicants has a criminal history, the likelihood of them having friends and associates with similar history grows exponentially.

Let’s say you have an applicant with a history of drug-related arrests. While it’s not a guarantee, the odds of that applicant having friends with similar histories are high.  Any seasoned landlord will testify that the criminal crowd has a history of destroying property, either through their own negligence or the negligence of the people they invite over.  So while you may have two tenants who are law-abiding and take great care of your property, you have to be on the lookout for the one that can bring destruction.  Again, having and applying a strict criteria on each applicant can help save you and your property.

Question 3: Is My (and the Neighbors’) Safety Compromised?

This may seem like an outrageous question, but my experience says that it’s much less far-fetched than you might believe.

The last thing a landlord wants is to compromise their safety and the safety of the surrounding neighbors.  We’ve all heard the news stories where the neighbor can’t believe that their neighbor was involved in (fill in the blank) and that they seemed like such “nice guy.”  It’s only when the reporter unveils the laundry list of criminal offenses and past disturbances that the neighbors and the general public see what the offender was really like.  Having a criteria and using the background check results to measure against it for each and every applicant is paramount in keeping all involved in a safer situation.  If I have to go to the home to collect unpaid rent, I’d rather go in knowing my safety wasn’t in question when I knock on the door

Let me reiterate, you need to look at each applicant individually.  Then take that individual analysis, add it all together, and make your rental decision.  I always invite you to reach out with questions you have regarding applicants.  While we don’t offer legal advice, we can provide you with practical solutions that we have discovered over the last 30 years in managing properties and performing applicant background checks.  Our goal is to help ensure you get paid and that your property is taken care of, all while keeping you safe.

About the author:

Multiple Tenants On Lease: Can One Bad Applicant Spoil the Whole Bunch?
David Pickron

David Pickron is president of Rent Perfect and a fellow landlord who manages several short- and long-term rentals.  He is a private investigator and teaches organizations across the country the importance of proper screening.  His platform, Rent Perfect, was built to help the small landlord find success.  You can reach David at david@rentperfect.com.

 

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