Landlords in Los Angeles cannot increase rent on the more than 650,000 occupied and rent-stabilized apartments in the city despite rising construction-repair costs and increasing city fees.
The Los Angeles Times reports that number is about three-fourths of all the apartments in the city.
Under the rules, landlords are not allowed to increase rents for apartments for an entire year after the expiration of the emergency order signed by Mayor Eric Garcetti in March 2020, when the policy went into effect.
As of now, no rent increases will be allowed for most L.A. tenants until 2023. And possibly beyond, the Los Angeles Times reported.
Landlords put in difficult situation
Landlords in Los Angeles say costs have risen sharply due to inflation, for everything from labor and materials for building repairs to city fees for trash pickup which puts them in a difficult position for rent increases for apartments.
“We have to pay a mortgage and pay utilities,” said Ari Chazanas, president of Lotus West Properties, which manages about 1,000 apartments across the city, to the Los Angeles Times. “I think there’s a lot of fatigue from people like me because it’s been going on for so long.”
While Los Angeles rents declined substantially at the beginning of the pandemic, they are climbing steadily now.
Apartment List reports that L.A. median rent for recently leased apartments have rebounded to $1,947 a month in November, up nearly 15 percent from the low in January and eclipsing pre-pandemic levels.
The city’s rent-stabilization rules generally apply only to apartments built before October 1978. Normally, landlords are allowed rent increases on existing tenants by no more than 3 percent annually, depending on inflation.
But the mayor’s emergency order changed that, marking the first time in more than four decades under the city’s current rent-control laws that landlords have been blocked completely from increases. Landlords remain able to charge whatever they want for apartments once a tenant vacates.
Are you having trouble choosing the right tenant for your property? The average eviction cost is $3500 and picking the right tenant increases rent revenue.
It’s a common issue and it’s challenging to know which tenant to go with. Some factors to keep in mind are a tenant’s credit and their criminal history. These factors are important as it can affect paying the mortgage on time and avoiding other potential issues.
Luckily, there are many tenant screening services available that can help. One tenant screening service allows the applicant to grant you access to the tenant screening reports, but this can take hours or even days as applicants don’t finish things in an urgent manner. This slows down the process of filling your vacancy and you end up losing time and money. This has frustrated thousands of people which is why SimplifyEm Property Management Software allows you to generate tenant screening reports in minutes without having to wait for the tenant. SimplifyEm has changed businesses for the better and gives confidence in choosing the right tenants.
SimplifyEm provides a wide range of tenant screening services. Tenant screening reports include a background check, credit check, social security validation report, an eviction search and instant payroll verification. No need to wait for tenants to submit their pay stubs, instant payroll verification automatically checks their income for you. SimplifyEm Property Management Software will also offer instant bank balance verification. This will allow real estate investors and property managers to confirm the tenant’s bank account balance ensuring that the tenant is dependable. With all of these reports available in your account within minutes, you can make a decision quickly, filling vacancies faster.
SimplifyEm streamlines every part of the process online. SimplifyEm also offers rental advertising where you can publish a vacant listing to 20+ sites, online applications so a prospective tenant can apply to the property or unit and online leases to e-sign the lease agreement. Once the lease agreement is signed, you can also provide a tenant portal for smooth tenant onboarding and a professional experience. The tenant portal includes online payments, renter’s insurance, documents, and the ability to submit maintenance requests. No more dealing with paper documents or paper checks. Everything is done and saved online.
SimplifyEm Property Management Software also has tracking of income and expenses, vendor management, automation, texting, sub-user accounts, notices, print checks, bank reconciliation, Schedule Es, 1099 tax reports and more. SimplifyEm can streamline your business and automate the most time consuming tasks.
SimplifyEm has been in business for sixteen years now and is one of the most popular property management software companies in the U.S. As a SimplifyEm user, you’ll get free training, and free unlimited customer support for yourself and tenants and vendors via phone, email and text. Simplifyem has over 150,000+ happy customers and has helped each and every one stay better organized and keep everything in one system. Get 50% off SimplifyEm today and get the right tenants faster.
Florida continued to be a top destination for movers in 2021, as people sought warm weather, beaches and abundant rental properties. Those are key takeaways from the latest Magnet States Report, which analyzes moves by thousands of Allied Van Lines customers and home-value data from Zillow.
The top three destination states for people who moved with Allied in 2021 were:
Florida – 5,684 moves
Texas – 4,739 moves
California – 3,253 moves
For those who had work-related moves, Texas and California were the top destination states for the last five years, as both have strong economies and a large workforce.
The Texas population is projected to grow by more than five million residents by 2030 as an increasing number of companies like Tesla, Oracle, and Charles Schwab have moved operations to the Lone Star State, according to the Austin Business Journal. Texas is the ninth largest economy in the world, with a lower cost of living and no corporate income tax.
California is attractive to many small businesses, according to Forbes, because of top talent, a stronger customer base, and great weather. Small businesses make up 99.8 percent of all business in California and employ 48.8 percent of the state’s workforce, according to the release from Allied and Zillow.
Movers in 2021 continued trend
“In 2021, residents intensified the trend that began in 2020 of moving to more affordable neighborhoods,” said Zillow senior economist Jeff Tucker. “The combination of rapidly rising home values and more available remote-working jobs has pushed people to seek out parts of the country where their home-buying dollar goes further. But some of 2020’s most popular destinations like Phoenix and Austin have gotten so expensive so quickly that they are losing some of their appeal as affordable options.”
The average interstate mover in 2021 moved to a ZIP code where homes were about $35,800 cheaper than where they moved from, amplifying a trend that began in 2020, when movers began migrating from pricier to much more affordable locations.
The comparable average ZIP-level price decline in 2020 was about $29,500. Before the pandemic, people tended to move to ZIP codes with very similar average prices: the average ZIP-level price change was only a decrease of less than $7,500 in each year from 2016 to 2019.
The top destinations for net inbound moves in 2021 were mid-priced growing Sunbelt metro areas, while the top origins for net outbound moves were in places that are colder, more expensive, or both.
The Dallas-Fort Worth metro area topped the rankings for the most net inbound movers in 2021, pulling in movers especially from pricey Los Angeles and chilly Chicago, as well as Phoenix.
Origins for people moving to Dallas-Fort Worth:
Destination Metro
1
2
3
Dallas-Fort Worth, TX
Los Angeles, CA
Chicago, IL
Phoenix, AZ
Chicago tops the list of metro areas that originated the most net outbound moves, sending the most movers south and west to Phoenix, Dallas-Fort Worth, and Los Angeles.
Destinations for people leaving Chicago:
Origin Metro
1
2
3
Chicago, IL
Phoenix, AZ
Dallas-Fort Worth, TX
Los Angeles, CA
“By combining our moving trend data with housing data from Zillow we are able to provide more robust insights into how people are moving and the importance of housing affordability,” said Steven McKenna, vice president and general manager for Allied. “Our team is proud to have kept America moving safely during the pandemic and we look forward to continued growth and innovation in the New Year.”
The U.S. Department of Justice (DOJ) and the Consumer Financial Protection Bureau (CFPB) are warning landlords and other housing providers on military tenant protections when they are providing rental housing for military families, according to a release.
The Justice Department and CFPB have sent a letter to landlords and housing providers reminding property owners of the important housing protections for military tenants, some of whom may have had to relocate or make other changes to their housing arrangements in response to the crisis.
While military families enjoy the same legal protections and privileges afforded to all other homeowners and tenants, they also have additional housing protections under the Servicemembers Civil Relief Act (SCRA), which is enforceable by the DOJ and servicemembers themselves.
Military tenants have several legal protections under the SCRA that are designed to enable them to devote their entire energy to the national defense. These include, for example, a prohibition on foreclosing on certain servicemembers’ mortgages without court orders, the ability for military families to terminate residential leases early, and without penalty, upon receipt of military orders, and a prohibition on evicting military families from their homes without court orders
The Justice Department and CFPB also issued a letter to mortgage servicers regarding military borrowers who have already exited or will be exiting COVID-19 mortgage forbearance programs in the coming weeks and months.
Military tenants protections in housing
“The Department of Justice takes seriously its responsibility to safeguard the rights of servicemembers and veterans,” Assistant Attorney General Kristen Clarke said in a release. “While servicemembers carry the great burdens of this Nation, they should not have to worry that their sacrifices will result in economic harm to their families. Mortgage servicers and landlords must ensure that they are in full compliance with federal laws intended to protect servicemembers and their families during military service.”
The letter to mortgage servicers comes in response to complaints from military families and veterans on a range of potential mortgage servicing violations, including inaccurate credit reporting, misleading communications to borrowers, and required lump sum payments for reinstating their mortgage loans. These complaints are being reviewed for compliance by the CFPB with the Coronavirus Aid, Relief, and Economic Security (CARES) Act and other applicable requirements.
“The illegal foreclosures of military families in the last crisis was one of the financial industry’s worst failures,” CFPB Director Rohit Chopra said in the release. “The CFPB will be closely watching mortgage servicers and will hold them accountable for illegal tactics perpetrated against military families.”
During the COVID-19 pandemic, roughly 7.6 million homeowners entered forbearance.
“While the majority have resumed their regular mortgage payments, approximately 1.25 million borrowers – many of whom are military borrowers – remain in forbearance programs that will expire at the end of the year. Ensuring that mortgage servicers comply with their legal obligations is crucial, especially since a decade ago some large financial institutions illegally seized the homes of military families, sending their lives into a tailspin. These violations were a result of breakdowns in the mortgage servicing industry that were severe and widespread. The result was numerous settlements with regulators, including a $186 million settlement between DOJ and some of the country’s largest mortgage servicers,” the two departments said in the release.
Servicemembers have several legal protections under the SCRA that are designed to enable them to devote their entire energy to the national defense. These include:
A prohibition on foreclosing on certain servicemembers’ mortgages without court orders.
The ability for military families to terminate residential leases early, and without penalty, upon receipt of military orders.
A prohibition on evicting military families from their homes without court orders.
Under the CARES Act and Regulation X, servicemembers and veterans have the same protections available to all mortgage borrowers. These include, for example, streamlined COVID hardship forbearance options, requirements that mortgages receiving a COVID-19 hardship forbearance be reported as “current” to credit reporting agencies if the loan was current before entering forbearance under the CARES Act, and requirements in the Bureau’s Regulations X and Z for treatment of delinquent borrowers and borrowers who have applied for loss mitigation.
“The CFPB and DOJ are calling on mortgage servicers and landlords to ensure that military homeowners and tenants are safeguarded during the pandemic and benefit equally from the Nation’s economic recovery,” according to the release.
A Phoenix real estate attorney has been put on probation for filing wrongful eviction actions against renters who were protected at the time by the national CARES Act, according to the Arizona Republic.
The Arizona Republic did an investigation in 2020 into 900 potential wrongful evictions which were filed against Maricopa County tenants who likely should have been protected by the federal CARES Act, which expired in July.
The federal CARES Act prohibited eviction actions against those who could pay rent if the property had a federally backed mortgage or if the rent was federally subsidized.
The newspaper reported that the court’s disciplinary action follows a recommendation of the State Bar of Arizona, which investigated complaints involving about 500 Maricopa County eviction cases. Clark admitted 128 of those cases violated the federal eviction protection law.
Clark is on probation for one year but can continue to practice.
Clark said in a written statement to newspaper that “some unintentional errors occurred” with eviction filings during the CARES Act.
“Once we became aware of them (the errors), we undertook an extensive self-audit,” he said. “This process, together with our interaction with the State Bar, has led to substantive improvements in our processes and procedures, and we continue to be proactive in seeking out and implementing additional improvements,” Scott said.
According to the Arizona Republic, Corinne Cooper, a Tucson landlord, tenant advocate and former law professor, filed the complaint against Clark for the Pima County evictions with the Arizona Bar Association in June 2020. Her complaint included documents showing the attorney filed multiple evictions for missed rent payments on properties covered by the CARES Act.
Cooper, a retired University of Missouri law professor, worked with University of Arizona law student Stephen Bagger to look at the CARES cases. Cooper said while Gov. Doug Ducey’s moratorium allowed eviction judgments to be rendered, the federal act prohibited even filing an eviction, according to Tucson.com.
Cooper and Bagger’s research, which they provided to the Arizona Daily Star, shows that there were 941 eviction cases heard between June 1 and July 2. Of those, 198 were on CARES Act-covered properties and about 108 appear to be problematic, she said.
While the court entered the eviction judgments, none were carried out, said Kristen Randall, presiding constable in Pima County. Randall said her office did not enforce eviction orders because, she said, doing so would violate the CARES Act. However, she said some residents not familiar with their rights moved once they realized an eviction had been requested, according to Tucson.com.
Tenant fraud in multifamily real estate is an increasingly pervasive problem, putting property owners, operators, and leasing managers on high alert.
The fraud issue has been exacerbated by COVID-19, necessitating the need for property management companies to think outside normal processes and procedures to take new and proactive precautions in managing and operating safely.
Capitalizing on this shift in operational behavior, there is the emergence of new “proptech” companies, which promise to assist industry pros in mitigating COVID-driven risks by using technology to improve and streamline business operations —including stemming the issue of tenant fraud.
New to the proptech party is bank-account linking. A bevy of companies are now offering bank-account linking solutions that provide renters and property managers with a convenient, efficient, and digital way of providing identity and financial information, along with supposed proof of leasing and month-to-month rent-payment assurance.
Property managers may find bank linking a safety measure in identifying good tenants, but this category of fintech/proptech can have pitfalls.
What is bank account linking?
Bank account linking, typically powered by financial services or “fintech” solution providers, is increasingly being offered as a proptech solution for the multifamily property sector.
It is a digital technology where consumers provide property owners with direct access to personal and financial banking information for the purpose of securing apartment-rental application verification through the leasing process and for rent payment.
At first glance, a property manager could see enormous value in this technology. With it, they gain full identity and financial transparency of a potential tenant’s banking/financial/personal information needed in the leasing process.
Does Bank Account Linking Help with Tenant Fraud Detection and Protection?
The answer is…not really. Maybe a better answer is…no.
At face value, bank account linking technology seems promising. For property owners, having access to a potential renter’s financial information seems reassuring, responsible, and a way to potentially mitigate eviction-prone, cost-inducing tenants.
It is the lowest common denominator in business management. And the nice thing is that it never has to be a source of contention with the tenant.
However, owners and operators should always be aware of potential land mines:
Online identity theft is rampant, and many consumers, no matter what demographic they target, (baby boomers, Gen X, millennials, etc.), are all wary of bank account linking to some degree.
For consumers new to the concept of bank account linking, there is an inherent fear of sharing highly personal information with a landlord who could have access to log-in and password details. Residents could be subject to invasive online hacking of their financial information. Clearly, owners and property management companies need to be cognizant of the negative side effects of bank-account linking. Negative-reputation risk is a real thing and management of negative information related to the technology should be actively managed.
There’s more…
What happens when an applicant says, “I don’t feel comfortable using my bank account information and/or linking as a part of my leasing agreement”? If they decline, there is no legal precedent for property owners to now reject the applicant.
EVEN if a potential tenant is truly a fraudster, now the property owner has no recourse to reject the applicant, only to double, triple, and quadruple their applicant screening. This is costly and exhaustive.
Flip the switch. For fraudsters, bank account linking can be an open door to falsified and fake tenant identities.
Bank account linking does not provide a full screen to ensure a potential renter has not hacked into someone else’s account and is pretending to be that person, using their personal and financial information. This scenario becomes a rabbit hole of countless ways fraudsters can juke a property owner.
There is no proof of identity, true bank accounts, financial statements, and the like. The door to fraud success is open, and the potential costs here for multifamily owners are immense.
As a Multifamily Property Owner, Invest in Assured Fraud-Detection PropTech
The proliferation of new proptech for commercial real estate is exploding. To provide context, the number of real estate technology startups has increased 300 percent over the past decade and over $9.7 billion of funding activity was reported in the first half of 202, according to real estate services specialist JLL. Proptech across the entire real estate management life cycle is here to stay.
Specific to tenant fraud detection and the technologies that offer bank account linking as a measure to mitigate fraudulent renters, multifamily owners and operators must be aware and educated.
Use bank account linking as a step in assessing potential new tenants. But know that if someone doesn’t want to use it as a part of your leasing process, including scheduling regular month-to-month payments, you can’t legally force them to do so.
If you are requesting bank account linking within your leasing process, and a prospect refuses to engage, you are now committed to engaging with that prospective tenant under the fair housing law, at which point you lose the option to decline the applicant as a potential resident.
Bank account linking surely has its place and can be a convenience feature for consumers and property owners, but it is not a replacement for fraud-detection technologies.
About the author:
Daniel Berlind is the founder and chief executive officer of Snappt, a San Francisco-based software company that helps multifamily housing companies prevent tenant and financial fraud. A former real estate executive, innovator and entrepreneur, Dan founded Snappt in 2017 after running his own property management company where he recognized a significant, industry-wide financial issue in the billion-dollar apartment rental industry. Previously, Dan was a professional baseball player for the Chicago Cubs and Minnesota Twins after attending California Polytechnic State University- San Luis Obispo.
Answering questions and communicating with prospects and residents is part of the job. But what we say or write can either be fair housing compliant or leave us open to a fair housing complaint.
Today, communication comes in so many different shapes and sizes. Beyond in-person conversations or telephone calls, we now field emails, social media messages, and website messenger services or chatbots.
Regardless of the forms of communication your company uses, you need to ensure that all staff members have adequate fair-housing training when replying to questions. How an employee answers can cause a prospect to have unrealistic expectations of your community, or worse yet, any contradictions in information can be assumed to be a result of housing discrimination.
Common Questions Received in a Leasing Office
The list of questions below by no means covers all of the questions you will face. However, it does give you an idea of how a query can quickly turn into a fair-housing compliance issue. How would you answer the following questions?
Do you have any three-bedroom apartments?
What are your screening criteria?
What kind of people live in your community?
Are there a lot of kids in your community?
My friend from church lives here. Are you a Christian community?
I have an emotional support animal. Do you have a no-pets policy?
Is your community safe?
Let’s review a few different scenarios.
Apartment Availability
One of the most common issues occurs when a prospect calls and is told there are specific units available. But later, upon arriving at the property, they are informed that those units are no longer available. This incident could result in a fair-housing complaint. How can this risk be managed?
Staff members whose responsibility it is to answer these questions must be careful to convey accurate information and explain that the information is valid only for that specific time. For example, simply adding the terms “today” or “currently” along with a brief explanation that availability is constantly changing gives an accurate representation of what is available at the time of the inquiry.
Protected Categories
How would you respond to a question regarding whether there are children in the community? Whether you love kids or not, it would be inappropriate to directly answer this question. Instead, the answer should be that you have a diverse community, and you would love to take the prospect on a tour so they can see for themselves.
Another protected category is people with disabilities. How would you handle a question regarding your pet policy and an emotional support animal? While many have opinions on this topic, not all are fair-housing compliant. The simplest way to handle this situation is to clearly state your property’s policy regarding animals followed by, if needed/requested, the fact that a reasonable accommodation for residents with disabilities who have assistance animals can be completed. Keep in mind as well that breed restrictions or size restrictions do not apply to service animals.
Fair Housing Compliance = Training
We have only considered a few scenarios here. But this highlights how communication can be either fair-housing compliant or open you up to a fair-housing complaint. The best way to avoid violating fair-housing laws when communicating with prospects or residents is to train, train, train!
Everyone on your team needs to be aware of how to handle questions, whether they respond personally or need to redirect to a more qualified person. Practice sessions that include role-playing can be beneficial. Also, having response sheets for the more fundamental questions can aid in the continuity of responses. Regular fair housing training is the key to communication 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.
Rent growth has continued to slowly decline, but demand remains strong and vacancy rates have stayed low, Yardi Matrix says in their November national report. The report expects conditions to continue to be favorable, especially for multifamily.
“Coming out of the worst of the pandemic, the multifamily market experienced eight straight months of exceptionally high rent growth, with the average U.S. multifamily asking rent rising about $180 between March and October.
“A slowdown is inevitable, and it started in November, when the average asking rent rose ‘only’ $4. Even so, the market remains healthy,” Yardi Matrix writes in the report.
Highlights of the November report:
Multifamily rents rose again in November, but only slightly, as the anticipated deceleration in rent growth finally appears to be taking hold. The average U.S. asking rent increased by $4 in November to a record-high $1,590.
Nationally, asking rents were up 13.5 percent year-over-year in November, a slight increase over October.
Demand continues to be extremely high, with the average U.S. occupancy rate of stabilized properties maintained at 96.1 percent in October, up 1.4 percent year-over-year.
Also remaining hot is the single-family rental market, with rent growth up 14.7 percent year-over-year in November. Although the single-family rental market is more varied than multifamily, occupancy rates rose 0.6 percent nationally year-over-year through October.
Job growth and apartment supply were normally the primary economic indicators before the pandemic. However, many typical indicators of growth are now mixed, according to the report.
“The point isn’t that traditional measures of analyzing multifamily fundamentals are no longer relevant. Economic growth, cost, the regulatory environment and attractive lifestyle amenities will always be determinants of the demand for housing.
“That said, the disruption of the pandemic and social changes that it caused have created some nuances that shouldn’t be ignored when underwriting multifamily investments over the next few years,” Yardi Matrix says in the report. About Yardi Matrix:
Yardi Matrix researches and reports on multifamily, office and self-storage properties across the United States, serving the needs of a variety of industry professionals. Yardi Matrix Multifamily provides accurate data on 18+ million units, covering more than 90 percent of the U.S. population. Contact the company at (480) 663-1149
It’s a great feeling when you sell some stock, a piece of real estate or the business you’ve poured your life into for a nice profit that puts a small fortune into your bank account. But then comes the tax bill to take a little bit of the bloom off that rose. It’s downright painful to hand your hard-earned money over to the government — even at the reduced capital gains rate.
The good news is, every now and then, the feds are willing to cut you a break. And there’s one tax break a surprising number of investors have never even heard of, let alone taken advantage of.
What Are Qualified Opportunity Zones?
Qualified Opportunity Zones (QOZ) are relatively new, and were created by Congress as part of the Tax Cuts and Jobs Act of 2017. The purpose of this new program was to encourage long-term investments in low-income communities across the United States. According to the United States Department of Treasury, there are more than 8,700 QOZs in the country, including in territories like Puerto Rico. The bottom line is that QOZs are a social program with the intent of redeveloping impoverished districts throughout the country by driving private capital to underserved communities and 35 million Americans by offering tax incentives to investors. These Zones are typically located on the outer edges of underdeveloped areas — outside the most blighted areas which investors will avoid no matter how many tax advantages they offer.
Doing Well by Doing Good
Qualified Opportunity Zones can provide qualified investors a unique way to reduce taxes while doing something good for those who are less fortunate. By simply rolling profits over from the selling of stocks, cryptocurrency, bonds, jewelry, art, or real estate into a Qualified Opportunity Zone, accredited investors can reap an array of tax benefits — assuming they make the investment within six months of realizing their capital gain.
It’s critical to note that unlike a 1031 real estate exchange, you’re re-investing your profit only — not your basis.
Three Examples of How QOZs Work (Be Warned: one of these benefits expires soon)
Let’s take a look at the three ways you can save…
Tax Saving Opportunity #1: Investors who invest capital gains income can defer their re-invested capital gains taxes until the end of 2026. In other words, you won’t owe the IRS a penny on that money until April 2027.
Tax Saving Opportunity #2 (expires on December 31, 2021): Better yet, if you invest your profits before December 31, 2021, you get the added benefit of a 10% step up on the basis of your original investment — which only adds to your tax savings.
The BIG Prize: Reduce A seven-figure tax bill down to zero
Tax Saving Opportunity #3: However, those tax savings are nothing when compared to the much bigger benefit you get if you hold your investment for at least 10 years and a day. If an investor held their Qualified Opportunity Zone investment for 10 years, that taxpayer wouldn’t have to pay even a penny in taxes on the profits they made— no matter how big they are.
Qualified Opportunity Zone Deadlines
Within 180 Days of Asset Sale
Within 180 days of realizing the gains of a sale, the investor must reinvest those gains into a Qualified Opportunity Fund to avoid capital gains taxes.
Before December 31, 2026
Until the earlier of December 31, 2026 or the date the investor pulls their interest from a Qualified Opportunity Fund, the investor can defer payment of capital gains on the reinvested gains.
Interest Held in a Fund for 5 – 7 Years by December 31, 2026
If the investor holds their interest in the fund for at least 5 years, the tax paid (by December 31, 2026 or when they pull interest in the fund) is reduced by 10%; if held for 7 years, it is reduced by 15%.
Interest Held in a Fund for 10+ years
After being held for at least 10 years, upon the sale, there is no tax on any appreciation on reinvested gains that occur while in the Qualified Opportunity Fund.
December 31, 2028
Opportunity Zone designations expire
December 31, 2047
The last date to sell interest in a Qualified Opportunity Fund.
As you can see in the chart above, the biggest takeaway of Qualified Opportunity Zone Funds is that after an investor holds their position in the investment for 10 years, there is no tax on the asset’s appreciation. That’s zero. So, if an asset appreciates 20 or 30 percent, that could translate to a significant return for the investor.
Who Might Take Advantage of this Unique Tax Savings Opportunity?
Qualified Opportunity Zone Funds are best suited for investors who have capital gains generated from the sale of an asset that may not be eligible for a traditional, like-kind 1031 exchange. So, one type of investor for a Qualified Opportunity Zone Fund could be appropriate for someone who holds shares in a stock that experienced high appreciation and now wants to sell it.
Or, another candidate who might be a good Qualified Opportunity Zone Fund investor would be someone who recently sold a business that created a potential significant long-term capital gains tax event.
The third type of investor who might be interested in a Qualified Opportunity Zone fund is a real estate investor who wants to generate some liquidity by selling their investment property. While a 1031 exchange investor is required to leave in their original principal and their gains, and even roll forward their debt, a Qualified Opportunity Zone investor is able to keep their original basis to do with as they please, and receive a tax deferral on the portion of the gains they invest in an OZ fund, resulting in instant liquidity.
The critical component for any investor is that they need to have sold the asset(s) within the prior 180 days and realized a capital gain.
Tax savings aren’t enough
As great as all this sounds, it’s important to carefully evaluate a project’s true investment potential before considering the tax benefits — especially since you’re required to keep your money locked up for at least 10 years in order to enjoy the full tax benefit. Like any real estate investment, there is no guarantee for cash flow, distributions or appreciation, and can result in the full loss of invested principal.
You see, as an investor with 20 plus years of experience in commercial real estate and investment sales who regularly advises high-net-worth investors, Kay Properties always emphasizes the importance of understanding the investment first and then the tax benefits. It’s better to look at the tax benefits as “gravy,” rather than as a reason to make an investment you otherwise wouldn’t even consider.
The good news is, plenty of development projects currently available. Plus, because many of these locations were determined to be economically challenged areas based on 2010 Census data and the Tax Cuts and Jobs Act was passed in 2017, many of these properties are now located in some of the hipster neighborhoods across the country.
How to find good Qualified Opportunity Zone projects?
Kay Properties & Investments works with a variety of carefully vetted sponsors to find the projects best suited to our clients. And we help our clients find Qualified Opportunity Zone properties that match their objectives and are appropriate for their situation.
We’re happy to introduce you to these sponsors and to help you analyze which one is the best fit for you.
Regardless of whether an investor decides to move forward with a Qualified Opportunity Zone fund investment or not, there are certain questions that each investor should ask their advisor before moving forward with this type of investment. These questions include:
Where are the real estate properties located?
Make sure you understand the underlying market fundamentals of the area. One thing in particular I advise my clients is to try and find a location where long-term demand is inherent in the market.
What is the make up of the fund in terms of diversified assets?
One of the ways to help reduce risk is to choose a property that are diverse in nature. For example, a portfolio with only one large project could be considerably more vulnerable to other competitors with the same type of building. Try to find a portfolio that has a balance of multifamily, retail, and distribution.
Who is sponsoring the investment properties, and what kind of reputation do they have?
Just like with any profession, there are quality QOZ advisors with years of experience and there are very inexperienced advisors who have very little experience. Avoid financial planners and other generalists and look for a firm that does nothing but real estate investments. Also, you will want to find a firm that is very particular about the type of properties they offer investors. Ask specifically what type of real estate assets they have previously invested in, and try to get some historic performance data.
What are the risks associated with investing in a Qualified Opportunity Fund?
It’s important to go into any investment with eyes wide open. Walk away from any firm that tells you this investment is “guaranteed” to make money. There are always 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.
Ask Bill Exeter
Ask Bill Exeter and his team your questions about 1031 exchanges and he and his team will get back to you.
About the author:
Betty Friant
Betty Friant holds her FINRA Series 6, Series 22, and Series 63 licenses, in addition to the coveted CCIM designation, that recognizes expertise in commercial and investment real estate.
She currently is Senior Vice President with Kay Properties & Investment’s Washington D.C. office where she serves as an expert Delaware Statutory Trust (DST) 1031 exchange advisor to high-net-worth investors and 1031 exchange clients. In her executive capacity with Kay Properties, Friant was instrumental in assisting the firm achieve a record $408 million of equity placements for real estate investments in 2020 and is at the forefront of helping Kay break that record in 2021.
Prior to joining Kay Properties, Betty spent 35 years in the commercial real estate industry focused on the acquisition and disposition of single-tenant NNN properties, including acting as Senior Managing Director for the Calkain Companies and co-founder of a Sperry Van Ness office in Winchester, VA.
Betty has spent her career building a reputation for providing superior client service that emphasizes transparency, integrity, and attention to details. This lifelong effort was recently recognized by GlobeSt. as one of the “2021 Women of Influence” in the commercial real estate industry.
In addition to her focus on the commercial real estate industry, Betty is dedicated to her family and is involved in the volunteer efforts of several community and civic organizations.
Kay Properties & Investments 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 115 years of real estate experience, are licensed in all 50 states, and have participated in over $21 Billion of DST 1031 investments.
* Past performance does not guarantee or indicate the likelihood of future results. Diversification does not guarantee profits or protect against losses. All real estate investments provide no guarantees for cash flow, distributions or appreciation as well as could result in a full loss of invested principal. Please read the entire Private Placement Memorandum (PPM) prior to making an investment. This case study may not be representative of the outcome of past or future offerings. Please speak with your attorney and CPA before considering an investment.
* No representation is made that any QOZ Fund will or is likely to achieve profits or losses similar to those achieved in the past or that losses will not be incurred on future offerings.
Diversification does not guarantee profits or protect against losses. All real estate investments provide no guarantees for cash flow, distributions or appreciation as well as could result in a full loss of invested principal. Please read the entire Private Placement Memorandum (PPM) prior to making an investment. This case study may not be representative of the outcome of past or future offerings. Please speak with your attorney and CPA before considering an investment.
There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) properties and real estate securities including illiquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. All offerings discussed are Regulation D, Rule 506c offerings. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential distributions, potential returns and potential appreciation are not guaranteed. For an investor to qualify for any type of investment, there are both financial requirements and suitability requirements that must match specific objectives, goals, and risk tolerances. Securities offered through Growth Capital Services, member FINRA, SIPC Office of Supervisory Jurisdiction located at 2093 Philadelphia Pike Suite 4196 Claymont, DE 19703.
State officials continue to applaud themselves for standing up for vulnerable Oregonians amid the pandemic. In a recent op-ed, (“Legislators must protect families facing eviction with special session fix,” Dec. 5,) Sen. Kayse Jama, D-Portland, and Rep. Julie Fahey, D-West Eugene/Junction City, wrote of their proposal, aimed at a legislative special session this month, to extend protections against eviction for tenants waiting for the state to process their applications for rental assistance. But what the legislators should really have focused their attention on is why another failed state software system has left as many as 10,000 Oregon families facing housing instability.
Known as Allita 360, the software for processing rental assistance applications was purchased without a competitive bidding process or stakeholder input. The state has been aware of problems with the software since February, when it launched a fund to compensate landlords for missed rent. Yet, it stuck with the software for the May rollout of the Oregon Emergency Rental Assistance Program. As with the landlord fund, the emergency rental assistance program has been plagued by system crashes, ineffective notification processes and a serious lack of clear communication from administrators. Applications have piled up, leaving renters’ requests for help in limbo for months. And landlords have spent hours — if not days – online, with no assurance that their renters’ applications had even made it into the program.
Keeping renters housed is our top priority too. That is why rental property owners have been collaborating daily with renters throughout the pandemic to navigate the complex 27-page rental assistance application and ensure their applications are moving through the system.
Leaders have called this an evictions crisis. But actual eviction filings for nonpayment of rent in November – after the expiration of the eviction moratorium were half of what they were in pre-pandemic 2019, based on our analysis of court records. Landlords aren’t looking to evict renters – they are just looking to get paid what they’re owed. The state could resolve many of the existing eviction filings by fixing the broken rental assistance software and simply providing clarity to landlords about who is in the system and where they are in the process of receiving payment for rent. If legislators want to truly help renters this winter, they need to hold the housing agency accountable and fix the barriers to accessing rental assistance.
Before the launch of the rental assistance program, the Legislature passed two bills prohibiting, at least temporarily, evictions for nonpayment of rent. In both cases, the text of the bills was kept secret and not available for public commentuntil they were voted on in committee. These moratoriums inadvertently created a legal landscape where an eviction notice became the only tool to compel a resident to apply for assistance if they have not done so on their own.
At the same time, there hasn’t been enough publicity statewide of the millions in rental assistance that people could seek.In many cases, according to rental housing providers and media accounts, renters said they were unaware of the assistance available to them until speaking with a judge at an eviction proceeding.
Even today, now that the state has paused taking in new applications, state reports show a stunning weekly decline in the number of applications processed.
The state’s housing agency and Gov. Kate Brown have stated that we have enough funding to pay every application in the system before it closed Dec. 1, including the 10,000 families whose applications have languished in administrative uncertainty for months, and are no longer covered by the eviction protections extended by the Legislature.
If the state matched court records for nonpayment eviction filings to applications in the system, and hired a qualified third-party nonprofit to cut the checks (as directed by treasury guidelines), they could pay out all of the assistance well before the new year.
Those same leaders calling on rental housing providers to “do the right thing” and not move forward with evictions should call on the state to fix the failed software and issue the rental assistance for those who have applied.
Oregon renters and rental housing providers have done their part for 18 months. Now it’s time for Oregon’s leaders to hold the agency accountable and cut the checks. No Oregonian should be evicted due to administrative mismanagement.
About the author
Imse is the executive director of Multifamily NW, an association of landlords, rental housing providers and advocates whose members represent more than 250,000 units of rental housing in Oregon.
