American Apartment Owners Association

Landlord alert: Where to buy homes for the best rental returns

Mon, 05/08/2017 - 9:05am

Today’s housing market is more competitive than ever, but investors are still pouring in.

Interest rates remain remarkably low, which makes financing an investment home easier. Low rates also have investors looking for higher yield, and single-family rental homes are an attractive option. Not only do they offer a steady, monthly stream of income, but as home prices continue to rise, the value of the initial investment increases as well.

“We are seeing more investors and new investors,” said Steve Hovland, director of research at HomeUnion, a real estate investment marketplace. “The Fed has really been helping us out. Interest rates are not as high as they have been in past cycles. Commercial real estate is overheated. The bull stock market has been running for a long time, so investors are looking to diversify.”

Like all real estate, investment returns are variable and local. Markets that command the highest rents do not always offer the highest rental returns. HomeUnion, which helps investors obtain and maintain rental properties, ranked the 10 best and 10 worst markets for real estate investing in the first quarter of this year, based on first-year returns, or the “capitalization rate”:

The Midwest may not seem like it offers the most attractive markets, but the cost of getting in is very low. Home prices in Cleveland are the lowest in the nation. Midwestern cities are also seeing something of a rebirth, especially in downtown and near-downtown areas. Millennials in search of jobs and lower costs are revitalizing those cities, and employers are paying attention.

The West Coast certainly saw huge job growth over the last decade, but home prices are so overheated in much of the region that the cost of entry is prohibitive. Even higher rents there, comparatively, don’t offset the initial investment.

Regardless of the area, the supply of entry-level homes — those most attractive to investors — is low. If the home is in good condition, it will attract multiple offers, and the more investors in the area, the more bids there will be.

“It makes it definitely harder. They have to act quickly. They have to be patient and understand that an investment property is not necessarily the only one that’s going to be out there. We lose a lot of bids. The market is hypercompetitive,” said Hovland.

A growing number of investors are looking at new construction now, the most in over a decade, according to HomeUnion. The price of entry is higher on new homes, but investors get a property with a builder warranty and a very low probability of major repairs.



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3 Trends Driving the Millennial Own vs. Rent Debate

Mon, 05/08/2017 - 9:03am

Across all demographics, American home ownership is at 63 percent — the lowest rate in more than five decades. Among millennials, the largest generation since the baby boomers, the rate is only a bit more than half that figure, at 34 percent. Again, it’s a record low.

Naturally, a lull in the economy forces business creation or reinvention to cope with the changing times. As the real-estate landscape and other economic indicators undergo various degrees of digital transformation, businesses must better understand their audience’s pain points and then adjust accordingly. The real-estate industry desperately needs a renaissance if it’s to remain relevant to younger generations.

True, the tech-forward offerings involved with searching for, touring and purchasing a home have evolved. Mobile apps, virtual-reality tours, artificial intelligence and machine learning all are in play. But it’s critically important to understand why these changes are needed to stay competitive.

Tri Nguyen, CEO of direct-mortgage lending firm Network Capital, has emerged as a thought leader in both real estate and millennial audiences. He credits his team — heavily staffed with members of the generation — for his company’s ability to dissect factors that drive success in this age segment. Network Capital then translates that knowledge into a nuanced approach to real estate. The resulting product is highly attractive to younger demographics.

Nguyen pinpoints three big trends affecting home ownership among the millennial market.

1. Gratification.

Delayed gratification long has been considered a viable quality. Forty years of Stanford University research touts it as the most significant precursor to success. In today’s on-demand age, though, the term “delayed” becomes subjective.

Millennials are typified in part by a desire for instant gratification. Prudent or not, their increasing economic sway demands that real-estate industry professionals find ways to adapt. As companies create products to supply this demand, they should incorporate AI and machine learning to expedite the paperwork process, further enhancing the virtual capabilities and superior customer-service strategies in place. “While millennials are looking for quick, easy and virtual options, they want to actually talk with someone throughout the process just like every generation before them,” Nguyen says.

2. Commitment.

Millennials want the option to move, whether it’s from job to job or across countries. Companies have responded, allowing employees to work remotely. This shift contributes to a growing disillusionment with home ownership.

Starting a family is one of the leading catalysts for home ownership. And millennials are getting married later in life, if at all. Only 27 percent of millennials are married, compared to 60 percent of baby boomers when they were the same age.

An Airbnb study revealed millennials are more interested in spending money on experiences than investing in home ownership. Their idea of the American dream isn’t a white picket fence — it’s the freedom to pick up and go at a moment’s notice.

Businesses that facilitate travel through home-sharing demonstrate what it means to cater to consumer demands. So do brands such as Remote Year, which survives entirely on the premise of remote work and travel. Apple, IBM and other major employers are adopting work-from home options that often are more typical of startups or small- to medium-sized businesses looking to decrease overhead. The real-estate industry has yet to master similar accommodations.

3. Income.

The average student-loan borrower owes nearly $40,000. Many millennials have accepted this debt as something they’ll live with forever. The overhanging cloud has a chilling effect on home-ownership rates.

“Millennial homeowners are bogged down by student loan debt, and we’ve seen that create hesitation toward home ownership,” Nguyen says. “But what we want to help them understand is that homeownership paves the way for building equity unlike any other investment. They can afford their dreams without overstretching themselves if they are willing to find homes within their means.”

Recasting home ownership in terms that fulfill millennials’ lifestyle requirements is the first step to shift their perceptions. The industry must immediately change its approach, which until now has been to treat millennials like a more distracted, less financially capable version of the generations that came before them. Millennials are distinct consumers who are looking for a message very different from the one they’re receiving.


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The one area where racial disparities in housing have disappeared

Mon, 05/08/2017 - 8:59am

Racial disparities in subsidized housing — which once saw poor black families overwhelmingly housed in large public developments — have essentially disappeared after decades of inequality, according to a new study by Johns Hopkins University researchers.

But low-income black families are still far more likely than poor whites to live in segregated, impoverished neighborhoods.

The findings show the critical importance of enforcing fair housing laws, researchers said, given the long history of housing discrimination against African Americans. More than half of all children living in subsidized housing in 2011 were black.

Dozens of successful lawsuits have been brought against the U.S. Department of Housing and Urban Development for segregating black families in poor and predominantly minority neighborhoods — which put them at a lifelong disadvantage in education and employment.

Trump officials have indicated they may roll back Obama-era rules instituted to address these disparities. Housing Secretary Ben Carson recently warned against making public housing too comfortable for the poor. Trump has also proposed cutting HUD’s budget by 13 percent.

“Black families have been disproportionately represented in inner- city public housing, and there was not an equal opportunity for them to be in multifamily or voucher housing,” said Sandra Newman, a Johns Hopkins policy studies professor who lead the research.

In the 1970s, more than 60 percent of black families with subsidized housing lived in public developments, Newman and her co-author found.

The situation was almost the reverse for white families. Only a third of white families with subsidized housing lived in those giant developments, whereas nearly 70 percent chose multifamily units. The privately owned and managed multifamily housing were often in much better physical condition than public developments. Just under 40 percent of black families had access to such housing.

The inequalities persisted through the 1990s. Now, however, the most recent data shows that — largely through the rising use of vouchers — low-income black and white families today have a nearly equal shot at living in privately owned and federally subsidized multifamily units or homes in the private housing market, the study found.

Sixty percent of black families as well as white families with subsidized housing in the 2000s used housing vouchers. A quarter of black families and a fifth of whites lived in public housing projects. And less than a fifth of each race lived in multifamily housing.

“Inequality in access to different kinds of housing has now been completely mitigated,” said Newman, who directs the Center on Housing, Neighborhoods and Communities at the university’s Institute for Health and Social Policy.

What accounts for this shift?

Newman and her co-author, Scott Holupka, cannot determine for sure but said the nature of publicly subsidized housing has changed over the years, with high-rise housing projects being replaced with low-rise townhouses that may be run privately. There’s also been a larger movement toward voucher programs that allow families to choose where they want to live.

Newman and Holupka also found no racial differences in the physical quality of public housing projects or how these developments were managed.

There is one area, though, where blacks are faring much worse than whites. Despite having an equal chance at the various types of subsidized housing, African American families are nine times more likely to live in segregated neighborhoods with high poverty and lower home values.

About a third of black households with children who moved into subsidized housing in the 2000s lived in such disadvantaged areas, compared with only 4 percent of whites.

Researchers said this pattern, which held no matter what kind of subsidized housing families chose, could result from various reasons. Housing projects and low-rent units have historically been located in central cities, where there’s a disproportionate number of poor African Americans. Black families with children who live in public housing are more than twice as likely as whites to reside in central cities. Landlords in the surrounding suburbs may also discriminate and not rent to black families with vouchers.

President Obama, toward the end of his term, proposed several initiatives to help poor families move to better neighborhoods, including expanding the voucher program to cover more expensive rent and encourage more landlords to participate.

HUD also strengthened the requirement that communities receiving federal housing funds adhere to the 1968 Fair Housing Act, which prohibits housing discrimination. The new rules require communities to seek out pockets of segregation and poverty; study how low-quality schools, limited jobs and high crime came to be; and put forth remedies.

Newman called the measures “possibly the boldest policy step in recent years” in her paper, published this week in Housing Policy Debate.

“It’s an attempt to be proactive about assisting tenants to find these higher quality neighborhoods,” Newman said. “But HUD is simply ignoring this at the present time.”

Critics, including many Republican politicians such as Carson, have objected to such measures as too onerous and have sought to eliminate the new rules.



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National Apartment Rent Growth Slows In Response To New Supply

Mon, 05/08/2017 - 8:56am

U.S. multifamily rents increased slightly in April, though the pace of rent growth continued to decelerate in response to new supply.

Apartment rents averaged a $3 gain up to $1,314 month-to-month across the country, according to Yardi Matrix’s monthly survey of 121 markets. On a year-to-year basis, rents rose 2% nationwide, reflecting a 5.5% drop in the average growth rate as rents return to their normal growth levels.

“As we have said for months, the deceleration is expected, given the rapid increase in supply and the inevitable return to growth that is more in line with income gains,” Yardi reports. The rent-to-income imbalance has been a big problem in recent years, with most Americans allocating more than 30% of their income to pay for housing.

Landlords in key markets are being forced to lower rents and offer concessions to remain competitive and attract residents. That is not to say the demand has softened.

While Millennials are aging (they now fall between the ages of 20 and 35) and will incrementally shift demand from renting to homeownership as they begin to start families, a large portion of the group (2 million) has just barely hit the prime renting age. That is nothing compared to the whopping 70 million expected to peak in 2024 — which means multifamily can expect solid demand from Millennials for at least seven years.

Yardi Matrix expects more than 363,000 new apartment units will come online in 2017, the largest wave of new supply to hit this cycle — though Yardi department of operations manager Doug Ressler said landlords likely will not feel the impact of the dramatic inventory influx until much later in the year.

Most of this year’s new supply falls within the high end of the spectrum and is in a handful of markets, including Nashville, Seattle, Miami, Denver, San Antonio, Dallas, Austin and Portland. Apartment owners in major markets like New York City and San Francisco are already feeling the impact of excess supply. Forced to compete for luxury renters who have an abundance of options, landlords are lowering rents and offering concessions to appeal to renters.

“We expect that rent gains will be rocky over the next 12 to 24 months as the market digests the wave of new supply coming online,” Yardi reports. “Apartment owners should moderate expectations during that time, even though we expect fundamentals to remain strong and the long-term demographic picture looks positive.”


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Energy-Efficient Design Has Moves Beyond a Marketing Hook

Mon, 05/08/2017 - 8:54am

When LEED certification was established in 1998, it was seen as a way to create a competitive advantage for its adopters. The new designation raised consumer awareness of energy efficient design and instilled a sense of competition around sustainable building. Why then, were developers slow to pursue it? Overwhelmingly, the cost. In recent years, the needle has moved considerably, with cost and efficiency largely to thank for the rise in energy-efficient design.

While consumers may identify with green buildings, they are often not willing to pay more to live in one. Or at least not much more. According to the National Multifamily Housing Council’s 2016 Resident Preferences Survey, respondents reported that they were willing to pay an additional $32.64 each month to live in a LEED-certified building. For the sake of comparison, that is $10 less than they would pay for an on-site fitness center. Thus, while favorability of “green” as a concept is top of mind for many developers, it is ultimately the growing cost efficiency that has driven the trend.

It’s true that building codes have become increasingly more rigorous on energy conservation and better building practices are more commonplace. Building enclosures, for instance, are now required to use continuous insulation to reduce heat loss and thermal bridging, and lighting wattage is closely regulated. The amount and type of glazing also require greater scrutiny to meet the latest energy standards. Often, local zoning codes even allow added floor area for certified green buildings, providing a financial incentive.

However, this standardization of energy efficient design has also contributed to driving down the price of efficiency measures, no longer an added cost but rather part of the project. For example, high-efficiency plumbing fixtures that support reduced hot water use were once considered an anomaly and not readily available. Today, they are more available and affordable than ever. Similarly, LED lighting used to cost about $50 per fixture, but the current price is closer to $15. Today, lighting has become the “low hanging fruit” of energy efficient design and can shave 4-6 percent off a monthly energy bill.

Other measures may be costlier up front, but can provide attractive ROI down the road. Direct exchange ground-source heat pumps, can heat and cool the interior, and even supply a building with hot water. Compared to air-source heat pumps, they last longer and need less maintenance, increasing ROI in the long-term.

Some multifamily buildings house micro turbines, converting natural gas into electricity for less than local market cost, while reducing a building’s carbon footprint. The up-front cost can be substantial, but for the developer who has a long-term hold strategy, the investment can pay off considerably. In Philadelphia, the trend is becoming more prominent, evidenced by new developments such as the FMC Tower at Cira Center South and the East Market’s trendy West Tower, both pursuing LEED certifications.

Still, the hurdle of certification cannot be ignored; LEED registration and certification could run more than $20,000 and require a careful balancing act. Also, LEED certification levels are determined only partially by energy efficiency, so to focus more on building energy use, other certifications have emerged.

One such certification that can apply to multifamily housing is Passive House. Originating in Germany in 1988, the design concept regulates space heating and cooling demand, primary energy demand, airtightness and thermal comfort. Interestingly, Passive House has found a niche in senior housing communities. The reason? ROI, of course. In an industry where builders are often owner/operators, making the investment is a strategic long-term move.

Other certifications such as Net Zero Energy might be similarly advantageous. Developed in 2011, the classification system focuses on harnessing energy from the sun, wind, or earth to exceed net annual demand. Promising simplicity and savings of both time and money, what is most intriguing is that nearly any building can make the criteria if the owner commits to it. Strategic additions of solar panels, high-performance envelopes, or air barrier systems can help even an older building achieve certification.

Still, consumer choice will always play a role, and even override social sensibilities when the price is right. Many decisions, like opting for a low-VOC odorless paint, might be a no-brainer because they do not affect the aesthetics. However, it is still a modest percentage of residents that prefers recycled glass countertops over granite, despite the environmental impact of quarrying the latter. When the cost of outsourcing high-end finishes is on par with that of the sustainable but less “luxe” option, you can guess which yields the greater marketing appeal.

While the draw of green building and energy efficient design is undeniable, it ultimately comes down to the financial bottom line; whether you’re talking about materials, certification, or leasing potential, energy efficiency is just as much about smart building as it is about being green.



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Debunking Myths About Security Deposits

Mon, 05/08/2017 - 6:51am

It’s wise to collect a security deposit from renters, which can help you protect against property damage to your rental unit. However, if you don’t know the security deposit return procedures, you risk running afoul of rental deposit rights laws.

Brush up on the protocol with these debunked myths about security deposit collection and use:

  1. Nonrefundable deposits are allowed. Even if you want to take a nonrefundable deposit to charge for keys or protect against pet damage, this is illegal. Legally, a security deposit agreement can only withhold funds to cover unpaid rent, unpaid bills, property damage, permitting fees (i.e., for a parking spot), or other use cases set forth in the lease agreement). In other words, if you are going to withhold security deposit funds, then it can only be for one of these reasons.
  1. If your tenant caused damage in excess of the security deposit, you’re out of luck. Technically, for landlord rights, security deposit funds can be supplemented if they aren’t enough to cover the cost of a repair by sending a bill to the tenant. Thus, if your renter caused $2,000 worth of damage but your security deposit was only $1,700, you can send the renter a bill for $300.

Even though you can seek reimbursement, you may find it difficult to get this money from renters. If the renter doesn’t pay, you may need to take him or her to small claims court. Still, it can provide peace of mind to know you have a valid option.

  1. You can deduct normal wear and tear. You cannot deduct normal wear and tear, such as daily wear to the carpet in a rental. You may charge a renter for steam cleaning if this was due to damage caused by the tenant. For example, if you noticed a red wine stain on the carpet, you can deduct the cost of cleaning this from the rental security deposit, since the spill was not “normal wear and tear.” If you’re deducting from the security deposit, provide an itemized list of the deductions and cost to repair. This serves as proof that you were within your rights to deduct, in case an unhappy renter decides to sue.

Landlord Considerations for Security Deposit Return

Security deposits are intended to protect your property from accidental or willful damage, as well as guard against unpaid rent or utilities. They are not a way for you to use a renter’s money for unit upkeep or normal apartment wear and tear. In some states you have 20 days to return the security deposit, while in others, you have 30 or 60 days. Some states require you to place security deposits in an interest-bearing account. If you placed the security deposit in your bank account, you could lose the right to withhold anything.

It’s always smart to check the local laws in your state or city for specific security deposit agreement procedures. Once you know you’re doing everything right, update your security deposit forms to reflect the law. This way, you are ready to welcome the next tenant.

American Apartment Owners Association provides low-cost, customizable forms for landlords including a security deposit form. To get your form and enjoy other landlord perks, become a member today.

The information provided herein is for advisory purposes only and AAOA takes no responsibility for its accuracy. AAOA recommends you consult with an attorney familiar with current federal, state and local laws.

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Can I Say “No Pot In My Apartments” When It’s Legal In My State?

Thu, 05/04/2017 - 12:22pm

Oregon Governor Kate Brown this month signed a bill that prohibits marijuana retailers from keeping or sharing customer’s personal information. According to reports, she said she was concerned about the Trump administration’s future actions when it comes to the legalized pot industry which employs 13,000 people in Oregon. So when pot is legal in a state, what issues does this present to property managers and landlords of rental properties?

By John Triplett

Rental Housing Journal

Property managers are often confused and seeking to better understand how to handle the issues of legal marijuana and medical marijuana when it comes to tenants and rental housing in their states.

Laws are changing all the time in many states as voters approve different levels of permission when it comes to marijuana. This leaves property managers trying to figure out what should be in their leases around the issue.

You may be able to ban smoking, but do you really know what your tenants are eating or growing in their apartments? Do you really want to know if they are good paying tenants?

Rental Housing Journal did a recent interview with Seattle, Washington attorney Bret Sachter, an expert in tracking the progression and transformation of marijuana laws, to discuss some common questions property managers have about marijuana and tenants.

“I’ve been asked this a lot,” Sachter said, “but it does not come up as often as you might think. The overarching issue here is that, with few exceptions, people can do what they want to protect their property, even if the prohibited behavior is not illegal. You can prohibit smoking, prohibit pets, but with marijuana it’s much easier because it is federally illegal. So you can pretty much prohibit it if you want to no matter what, even medical marijuana,” Sachter said.

4 questions about pot, tenants and apartment leases

Sachter says in terms of Fair Housing issues, and the U.S. Department of Housing and Urban Development (HUD) it is a situation where HUD wants it in the lease that marijuana is illegal but enforcement is another issue, he said. It is not so much that HUD wants landlords to evict over marijuana, but that you have something in the lease language that allows for eviction in the instance of marijuana use on the property. “So it is pretty clear as far as HUD is concerned,” he said. Here are his answers to four questions on pot and apartments.

No. 1 – Tenants with a disability and medical marijuana

Question: If a tenant comes in and says I have a disability, here is a note from my doctor, I use medical marijuana, which is legal in this state, and I want to rent your apartment. Can a landlord prohibit that?

Answer: “A landlord can absolutely prohibit that because marijuana is illegal under federal law.” The landlord can say, “I understand our state allows medical marijuana but as it is still a Schedule 1 drug and I prohibit it on my premises.”

No. 2 – Marijuana is legal in my state – but what does the lease say?

Question: What if a tenant says marijuana is legal and they should be allowed to use it?

Answer: “If your lease prohibits smoking and prohibits use of illegal drugs, then the legality of marijuana at the state level is irrelevant because under federal law marijuana is illegal. If your lease does not have those types of clauses, you should talk to an attorney in your state or city to find the best solution for your lease.”

There is no law about reasonable accommodation for marijuana users, federal laws do not require it. As far as the federal government is concerned it is not ok.

“One thing I would say, and it is important, I would encourage landlords just to make everything clear,” in the leases, he said. “Clarify in a lease that you must abide by all laws state and federal.”
That is the case in residential. He said it can be different in commercial.  (There was a commercial case in Oakland, California and you can read more about it here.)

“But In residential it is not as tricky, and I am speaking very generally here,” Sachter said. “The states may have their own thing going on with legal marijuana laws, but it is still federally illegal. Make it crystal clear in your leases is my best advice,” he said. “How can you attract tenants in a state where it is legal yet protect the owners of the property? You cannot have it both ways.”

“I know in Seattle there are Airbnb bed and breakfasts that specifically market themselves accordingly, as part of marijuana tourism to come and stay in our place where it is legal.” But if a property manager doesn’t want that going on, then they have to be up front in the lease.

“If your tenant is Airbnbing to a tenant who is then using marijuana – well if you can’t catch them you cannot do anything about it. You have to prove they are doing this.  They are going to be using marijuana regardless of what the lease says.”

No. 3 – What if the tenant using marijuana is a well-paying, good tenant?

“Landlords can certainly put a no-waiver clause in the lease. If I say, ‘Here is a list of prohibited things’ and if you do these prohibited things in the lease, you are subject to eviction,” he said.

“However, any time I waive any of these things does not constitute an overall waiver. It basically means you should not ever do it again,” he said. “Just because you get away with it once, does not mean you get away with it every time,” Sachter said.

No. 4 – Can I say ‘no pot in my apartment?”

“Usually if you say, ‘No pot in my apartment’ and you find a tenant using marijuana and you haul them into court, more than likely the judge is going to say, ‘Have you stopped?’ to the tenant and ‘Are you going to do it again?’ and the tenant is going to say ‘No.”  And then judge will say, ‘Ok, dismissed.”

To put a more legalistic term on it, usually a court will be in favor of “allowing the tenant to cure the defect,” rather than evict for most things like that, Sachter said.

Technically, in Washington, a landlord would serve a 10-Day notice to comply or vacate with the terms of the lease.  This process, therefore, gives the tenant a chance to “cure” the violation before the landlord can evict. Check your local state laws on this.

What one experienced property manager says about pot

Sam Driver, Product Director for, and an experienced property manager at the property management software company, said as far as marijuana use in apartments, due to the newness of the legislation, the federal laws that supersede state and county laws, and liability concerns, it is not a topic that comes up a lot – yet.

“Generally, the safest solution is to choose the most conservative path-impose a no-smoking policy, which can in some cased cover outside areas, and a crime provision that includes local, state and federal laws. In many states, there are setbacks from doors, and it is particularly important if the building is a place of work which a multi-unit apartment building certainly is. So your lease should contain a provision explicitly banning smoking and illegal activity. Because the feds still outlaw it, this should be sufficient,” Driver said.

“This of course only covers the smoking angle. If a resident consumes it in another way, you’d likely never know,” he said.

Growing marijuana could put a power load on your apartments

“As for growing, that’s less clear. But in general, unless the electrical system is designed for it, the loads grow lights put on the apartment unit could be excessive. I’d consider a reasonable use clause that specifies all high load equipment, including lights, air conditioners and any kind of pump be approved by you.

“This would put you in a position to take action if they are putting too much load, without specifically calling out the use of the equipment. Pumps are a good area for monitoring, because of the intermittent load, they trip breakers, and anyone who is using a hydroponic system would need several,” Driver said.

What if I want to market my apartment to marijuana users?

“If, however, you wanted to roll the dice and market to this crowd, assuming your state laws allow it, remember that the federal laws would cover any bank deposits from proceeds,” Driver said.

“In this case, you’d be able to do it, assuming no federal intervention, in compliance with local laws. No insurer would provide EO&E (errors and omissions excepted) insurance to you, and you wouldn’t be able to deposit any funds into a federally-accredited bank. So you’d have to self-insure, and run an entirely cash business, but you could do it, risking only federal enforcement.

“The big question is, ‘Would the premium rents be worth the risk of forfeiture?’ If you run afoul of the federal drug laws, the asset seizure possibility is a huge risk. You could lose the building.
“If you’re managing other owners’ properties, then you’d be risking their assets even if you used different leases, unless you kept fully separate books, bank accounts, and co-mingled nothing. So I’d say it would be all-or-nothing,” he said.

“The timing is tricky, too. Leases contain a provision that stipulates that the contract is in force in a specific jurisdiction. If they change the laws rendering your lease out of compliance, what happens during the remaining time of the lease? Is it invalidated? Or does the contract remain in force until it expires?

“Good questions for your lawyer,” Driver said.

How to keep up with status of pot laws in the different states, a 501(c)(3) nonprofit nonpartisan public charity, provides professionally-researched pro, con, and related information on more than 50 controversial issues from gun control and death penalty to illegal immigration and marijuana laws across the country. “Using the fair, FREE, and unbiased resources at, millions of people each year learn new facts, think critically about both sides of important issues, and strengthen their minds and opinions,” according to the company’s website.

Here are where the pot laws stand for medical and recreational marijuana in several states, how it was passed,  and what is permissible in the possession limit, according to You can see their excellent full chart here state by state. Keep this link as they update the ever-changing pot laws in the different states.

Here are what some some states are doing with links to more information on each state’s pot laws.

Oregon: Ballot measure 67, 24 oz usable; 24 plants, 6 matures and 12 immature

Washington: 8 ounces usable, 6 plants

Arizona:medical marijuana is legal 2.5 ounces usable, 12 plants

Colorado: 2 ounces useable, 6 plants, 3 mature, 3 immature

Utah: prohibited with a few narrow exceptions



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Factors in deciding a rent hike

Thu, 05/04/2017 - 12:07pm

I’m often asked by owners when would be a good time to raise the rent. Of course, they have income property for a reason — to earn a profit.

We most often rent to tenants on a one-year lease. This ensures tenancy for both the tenant and the owner, and it ensures that the tenant won’t have an increase in rent. When the year is up, the tenant is hoping that the rent stays the same. Most owners wonder if it should.

As a tenant moves into a property, it’s after determining what they can afford in terms of rent and utilities. Generally, as the year passes, their income remains the same. It seems that every year, everything else has been getting more expensive, if even by a few dollars. Necessities such as food, gas and health insurance have been edging up higher and higher as time goes by.

Purchasing a home and, therefore, investment property also has gone up, so the cost of owning an investment property is then passed on to the renter. Rents rise when there is a high demand for housing. In the meantime, salaries are slow to rise, adding more burden on the tenant to dedicate more income toward housing.

There are a couple ways to look at the question of whether to raise the rent or to keep it at the same level. It depends on your goal for your investment. Many owners feel that if they have a good tenant who is paying on time and taking good care of the property, keeping rent stable could keep the tenant in the property for many years with minimal problems. The other option is to raise the rent annually by a small percentage.

The other day, I received an email from an owner who had purchased a condo through my company and was calling for advice on raising rents. The Homeowners Association had raised fees and they had received a supplemental tax bill that they needed to cover. The tenants had been in the property at the same rent for three years. The owners were concerned about losing them. After discussing it with me, they decided it would be fine to raise it enough to cover their extra cost of $50 a month.  They let the tenants know and the tenants stayed. It was a reasonable raise that didn’t make the tenants feel that they wouldn’t be able to continue to afford to live there.

On the other hand, we have been asked to raise the rent after one year by 6 percent, which equated to a $150 per month jump in rent. The tenant was concerned and decided to find another place to live. The house needed a small amount of work done, as well as vacancy time between tenants. Additionally, there are often leasing fees attached to finding a new tenant. All in all, the $150 raise in rent ended up costing this homeowner more than raising the rent.

If the homeowner had decided to raise the rent, especially if the tenant is a good one, a gradual increase may have kept the tenant in the property, keeping income flowing in and giving a nice family a good place to live.

In this economy with the cost of living rising faster than income, it’s my opinion that it’s wise to weigh the options and make those decisions with all possible outcomes in mind.



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Navigating the Changing Landscape for Multifamily Financing in 2017

Thu, 05/04/2017 - 12:05pm

While multifamily remains one of the most desirable asset classes to finance, a number of new factors have emerged that are making it more challenging to secure competitive financing.

The multifamily market has certainly enjoyed a golden era. Vacancy rates are down, rent growth is up and overall fundamentals point to a healthy investment market for multifamily. According to a recent CoStar report, total net absorption of apartment units in 2016 held steady at over 172,000 units, indicating healthy renter demand for multifamily.

While multifamily remains one of the most desirable asset classes to finance, a number of new factors have emerged that are making it more challenging to secure competitive financing now than before.

The question is: will we continue to see strong fundamentals drive lender appetite for multifamily, or will investors and lenders pull back in response to potential over-construction and uncertainty as to whether the market can sustain this growth?

As a mortgage banking firm, we believe there is still plenty of capital available for the right multifamily investment opportunities. Here are several key trends that investors should expect as they navigate multifamily financing in the year ahead.

Lender appetite for multifamily prevails

Steady rent growth, coupled with high occupancy rates and the overall stability of this asset class, will continue to attract strong investor interest and drive lender appetite for multifamily in the year ahead.

While national vacancy rates are projected to increase slightly with new deliveries, these rate predictions are still lower than historic averages and are significantly lower relative to other asset classes.

On a national scale, strong renter demand has fueled a multifamily construction boom in major metropolitan markets throughout the United States. There has been some speculation, however, that the record number of new deliveries will potentially soften rent growth.

That said, the majority of new development has been concentrated in dense urban cores, while the rest of the nation as a whole has not seen a lot of new construction. As such, this potential oversupply is limited to select markets, and will not impact financing for assets in supply-constrained markets with strong demand drivers.

Underwriting continues to be fundamentals-based. Lenders will still apply the location rule when financing a multifamily property, and will typically favor markets with strong employment and population growth. In addition, lenders will also evaluate the market’s development pipeline to monitor for projected vacancies resulting from new construction.

Availability of capital

For assets that meet the aforementioned criteria, there are still ample sources of capital available to finance multifamily investments.

Most lenders feel that the multifamily market is at the correct pricing, and will continue to finance multifamily by evaluating each property on a case-by-case basis.

In light of rising concerns regarding potential oversupply and rent growth moderation, however, some lenders are being more conservative in their underwriting, and are factoring in this uncertainty in their loan originations.

Banks, for example, will still finance quality assets in strong locations, but are scaling back on the high-leverage loans they issue and taking a more cautionary approach in the evaluation process.

That is not to say that there isn’t financing available for multifamily. Borrowers will simply need to work harder to make their case to lenders, and will need to work closely with an experienced financial partner for the most optimal financing solution. Those with a proven track record, strong fundamentals and solid investment strategy are more likely to secure competitive financing for this product type.

For example, we recently financed a portfolio of nine multifamily properties in Los Angeles. The portfolio consisted of rent-stabilized apartments in the West Hollywood and Koreatown sub-markets of Los Angeles. Given the affordability challenges in this market, this portfolio demonstrated strong tenant demand, high occupancies and stable cash flow, allowing us to arrange high-leverage financing on behalf of the client.

Interest rates trend upward

There are a number of political and economic factors that will impact multifamily financing in the year ahead.

First, interest rates will continue to rise. The current interest rate environment has certainly changed lenders’ outlook on the capital markets. Prior to the recent rate increases, lenders wanted to issue as many loans as possible. Now, lenders are hesitant to lock in rates and are slower to pull the trigger.

On the other side of the equation, borrowers are looking to lock-in lower rates over the long term before rates rise even further. In fact, some borrowers are willing to pay more today for that surety of rate than to take the risk with a higher rate in the future.

Second, the Dodd-Frank risk retention rules took effect last December as well, requiring CMBS lenders to hold onto five percent of their loans as opposed to selling them off as bonds. Though many investors had feared the risk retention rules, the reality is that the impact on lending has been relatively minor thus far. These rules actually helped CMBS lenders obtain better pricing.

Third, Trump recently signed an executive order to repeal Dodd-Frank, the laws which were set in place to prevent the risky lending that precipitated the financial crisis of 2007-08. A potential repeal of these laws could serve as a catalyst for financial deregulation, making lending easier for banks and other capital sources. That said, these changes will not happen overnight, and lending, for the near term, will remain the same.

Ultimately, multifamily as a whole will continue to perform well and remain a solid investment target for investors in 2017. That said, it’s important to acknowledge that there are a few more challenges now than there were in the past, including potential oversupply in urban cores, rent growth moderation and higher valuations and rising interest rates.

There is still plenty of capital available for the right investment opportunities, but borrowers will need to work harder to make their case to lenders. Looking ahead, the best mortgage bankers will navigate these challenges on a case by case basis, and will assist sponsors with finding the most competitive financing solutions for their investments.



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Nine Twitter Accounts For Aspiring Real Estate Investors To Follow

Thu, 05/04/2017 - 12:00pm

We’ve all heard success stories of individuals getting rich from a smart real estate investment opportunity. But like any other wealth-building strategy, success in the realestate market isn’t based on luck: It requires real knowledge and skills that can only be obtained through learning.

A good place for aspiring investors to begin educating themselves is Twitter, where the best and brightest minds in the industry come together to share their valuable insights. We asked members of the Forbes Real Estate Council to share follow-worthy Twitter accounts for those looking to enter the world of real estate investing.

1. Landlordology (@landlordology)

This free education site teaches everything to make you a rental investment and management pro. The site contains investment advice, state laws, Landlord Toolbox, and amazingly well-produced Landlord Guides book series, all for free. It’s by far the richest, deepest resource for self-managers, and Lucas Hall, the founder of Landlordology, is a wealth of knowledge for newbies and pros alike. – Gino Zahnd, Cozy

2. Blackstone (@Blackstone)

I grew up studying Blackstone for a number of years and recently had the pleasure of meeting Tony James at an event at Yale. I was blown away by the depth of knowledge and experience they have amassed scaling this business into what is, quite arguably, one of the largest asset managers in the world. – André Bueno, The BM Group

3. Seth Williams (@retipsterseth)

For investing, follow Seth Williams, the founder of Seth knows other good real estate resources when he sees them, and he’s not shy about sharing their content with the world along with his own expert musings. His content is like a “Learn the Who’s Who of Real Estate 101” course that teaches followers how to find the most valuable real estate information online. – Frederick Townes, Placester

4. Don Campbell (@DonRCampbell)

I would suggest Don Campbell, the founder of the RealEstate Investment Network based in Canada. Don has been running the network for a long time and is also an avid real estate investor. His advice is timely and based on pure facts and real estate trends on a micro and macro level regionally. He has been analyzing and forecasting real estate markets since 1993 and I have found his advice spot on. – Ali Jamal, Stablegold Hospitality

5. Joe Fairless (@joefairless)

The one person that comes to mind immediately is Joe Fairless. He talks the talk and walks the walk. Not only is his attention to detail with investment strategy second to none, but his work with Junior Achievement is admirable. If you’re looking for someone to look up to, learn from and model, it’s Joe Fairless. – Abhi Golhar, Summit & Crowne

6. John Burns (@JBREC)

John Burns and his team do and share the best original research on changes you can expect in the real estate market. There’s a reason homebuilders and investors pay attention to what he says. – JD Ross, Opendoor

7. Mitch Stephen (@Mitch_Stephen)

Do you want to start investing in real estate but you find yourself without the knowledge and funding to do so? Check out Mitch Stephen, a seasoned real estate investor and “flipper” from San Antonio, Texas. He shows the masses how to find great real estate deals, then he reveals private funding sources to finance all your real estate ventures. He teaches the entire investing package from A to Z. – Angela Yaun, Day Realty Group

8. Texas A&M Real Estate Center (@TexRec)

I personally follow Texas A&M Real Estate Center because I believe so much of success in real estate is understanding supply and demand. That truly is what determines location priority. – Tim Herriage, 2020 REI Group

9. Veterans For LIFE Foundation (@Veterans4LIFE)

I would definitely follow the Veterans for LIFE Foundation. They are a community of realtors and brokerages dedicated to building homes for families in need, creating social change with every home they buy and sell. Veterans for LIFE is HUD-approved and can provide new investors the opportunity to get into the marketplace. – Richard Wyman, First American Capital Real Estate Services, LLC


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‘First Time Flippers’: Watch These Rookies Make the Darnedest Mistakes

Thu, 05/04/2017 - 11:57am

“First Time Flippers” is train-wreck reality TV at its finest: The DIY Network show, which recently aired its Season 5 premiere, features real-life rookie house flippers as they fumble their way through. The results? Well, let’s just let the actions of Liz and Ray speak for themselves.

In the “Don’t Quit on a Sand Pit” episode, this St. Petersburg, FL, couple, who have a 3-year-old and a 6-month-old, decide they want to start flipping as a “family business.” So Liz goes out and buys a fixer-upper for $200,000, and Ray promptly quits his full-time job. That’s mistake No. 1.

“If it goes well, we go on to the next one,” says Liz. “If it doesn’t go well, we’re kind of screwed because this is our income.” Uh-oh.

“We’re not qualified,” Liz admits. “The most I’ve done in my life is paint. The most Ray has done in his life is probably nothing—maybe fix a faucet.”

But lack of experience doesn’t faze them. They gleefully show up for the demo, armed with little more than a sledgehammer and crowbar. Oh, the lessons they learn! Check out this list in case you’re tempted to try house flipping yourself and desperately need a reality check.

Lesson No. 1: Never use a crowbar on glass

The couple want to remove an entire wall, so when potential buyers first walk in, they’ll see the water out back. This is a good idea, as the house is nicely located on a waterway. But part of the wall is a sliding glass door, and Ray tries unsuccessfully to rip it out with his bare hands. “Gimme the crowbar,” he then cries, trying to pop out the frame. Of course, the glass shatters in huge shards everywhere.

Lesson No. 2: Never use a husband as a ladder

Ray and Liz didn’t think to bring a ladder with them, so Ray hoists Liz to the ceiling so she can pop through an opening and take a picture of the attic beams with her cellphone. What could go wrong? Thankfully, nobody breaks anything, but we’re on the edge of our seats the whole time, and for all that, Liz is unable to get a decent photo. But Ray does get a good goose in.

Lesson No. 3: Wear protective gear

While demoing the kitchen cabinets, Ray and Liz start swinging with only gloves to protect them from flying debris. That’s right—no goggles, no helmets. The result: Ray swings his sledgehammer straight into Liz’s head!

“I think I need to go to the emergency room,” she says. But there will be no ambulances in the house today; they have too much work to do.

Lesson No. 4: Turn off the water and power

Ray rips out the dishwasher, without shutting off the water or power supply, and a puddle of water collects on the floor. While standing in it and with wet gloves, he takes a screwdriver to disconnect the electrical wires. Yes, sparks fly and the experience is literally shocking.

Lesson No. 5: Read the instructions

Ray slices open a bag of tile grout and randomly dumps it in a bucket and puts it under an outdoor faucet to add water.

“Don’t you think you should read the instructions first?” asks Liz.

“No, I got this,” says Ray, even though he’s never done it before.

Of course it ends up taking a ridiculous amount of time to install the floor tile, because they’re completely winging it.

Lesson No. 6: Measure before you start landscaping

From the very beginning, Liz has envisioned creating a big sand pit in the grassy backyard. “This is Florida, and it would be nice to have coffee in the morning, and watch ducks on the water,” she reasons.

So without measuring, Ray picks a random spot and spray-paints a big circle in the grass. When they start to dig it out (Liz using a hand spade), they find that the grass is too tough to remove. They spray-paint another circle over the dead grass, which is easier to remove. “This doesn’t look too round,” Ray mutters. Ya think?

Lesson No. 7: Use a wheelbarrow already

Liz gets tired of digging with the hand spade, so Ray tells her to start schlepping the bricks to line the sand pit into the backyard. With no wheelbarrow in sight, she starts carrying the bricks, one in each hand, to the backyard.

“This is hard,” she complains. So Ray throws down his shovel and hefts the bricks himself, an armload at a time, which still takes an absurdly long time.

Lesson No. 8: When all else fails, call in the pros

After grabbing random kitchen cabinets and loosely nailing them to the wall, Liz and Ray discover that they’ve put the cabinets in the wrong places. Finally, Ray agrees to have professionals install the cabinets, because this is one of the most important features of the home.

So how does it all end up?

Ready for a shock? Believe it or not, the house ends up looking surprisingly good—especially the kitchen, where professional help was called in. Ray and Liz are beyond pleased. Because they’d done so much of the reno work themselves, they were able to bring it in under their $35,000 reno budget, spending only $27,000.

“We’re definitely flipping another house!” they declare proudly.

Not so fast, Liz and Ray. With comps in the area at $275,000 to $300,000, they decide to put their renovated house on the market for $300,000. By the time their show airs, they still haven’t received an offer, which just proves that even when a house looks good, flipping is a gamble rather than a sure thing.


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5 Tips for Effective Real Estate Photography

Thu, 05/04/2017 - 11:53am

In today’s era of real estate marketing, the internet is the undisputed champ. Whether it’s on social media, the local multiple listing service or real estate information sites, the key to making your house stand out from the competition is through the visuals presented by photographs and virtual tours.

For decades, curb appeal has been referred to as essential to creating a positive, lasting first impression. But today, buyers won’t even get in their car to come see your home if they aren’t excited by what they see on the internet. Just like Tinder, they’re likely to swipe left in search of a better, more alluring option if they aren’t excited by what they see.

But what really matters to you isn’t that your house looks pretty, it’s that you see the positive effect on your selling process. Chicago-based real estate and business photography company VHT Studios reports homes shown with professional photography sold 32 percent faster.

So what can you do to ensure those pictures tug at the heartstrings of potential buyers, get them to schedule a showing and make that offer as quickly as possible?

Hire a professional. Let’s be honest, there is no bigger turnoff than scrolling through pictures of a house which were obviously taken from a cell-phone and do a great job of highlighting poor lighting, clutter everywhere and the obligatory agent-in-the-bathroom-mirror selfie. This collection of pictures would be more correctly titled “C’mon, Man,” than “Welcome Home.”

A professional photographer is unquestionably worth every penny. Adam Lowe, owner and lead photographer of Rockville, Maryland-based Adam Lowe Creative, says, “Consider that professional real estate photographers have specialized software and equipment that most people don’t have with their simple point-and-click cameras.”

For example: “Dark rooms that don’t have enough natural light aren’t a problem for professional real estate photographers as they’re equipped with the proper lighting, advanced lenses, Photoshop proficiency and other equipment,” he says.

When searching for a top-notch photographer, start by asking your real estate agent for a referral because it’s likely he already has someone he works with regularly. In many cases, it’s your agent who will hire the photographer, as it will be the crux of both the online and print marketing plan.

Should you be the one hiring the photographer, another tactic to employ is scanning other listings with pictures that really jump out at you. Contact the listing agent to get the contact info for the photographer they used.

Stage your house. What’s the one day you were sent to school looking your absolute best, with your hair perfect and your clothes ironed so you’d leave that wonderful, lasting impression of cuteness? Picture day. And as annoying as it may have been for you to suffer through back then, the same rules apply for your house. This is the one day everything should be pristine.

The day the photographer comes, either you or your agent should accompany them to help move any unnecessary furniture, kid’s toys, and other clutter that would take away from the model home image you are going for. While they aren’t professional stagers, you are looking for a photographer who can take control and tell you what needs to go where to show off the space as optimally as possible.

Choose the right timing. When scheduling the photo shoot, be sure to point out the direction your house is facing as well as consider the upcoming weather forecast if at all possible. These factors should play into the day and time the pictures are shot.

Another type of shot to consider are dawn or dusk photos. While these may prove cost-prohibitive, they can also really help your house to stand out among the plethora of other standard daylight pictures your competition will employ. “Since twilight photography is really for property exteriors, it’s the perfect time to show off landscapes and lighting features, as well as sneak in an amazing sunset backdrop,” Lowe says.

Aerial photography. Drone and other aerial photography is really gaining steam to not only capture unique angles for pictures, but to create stunning video virtual tours. As in many aspects of our lives, drones are sure to have a major impact on the way we preview houses in the coming years.

While this may be a service your photographer offers, be sure you are located in an area in which it’s allowed and the drone operator is properly licensed. If you are in an area where drones are prohibited, there are other options, like pole aerial photography, which “will not only get a camera high into the air, but can be precisely situated in areas where getting a clear and advantageous shot is difficult,” Lowe says.

Location, location, location. Many times we’re so focused on getting the perfect shots of the house we forget to include pictures of important neighborhood amenities. While this can be tricky considering a limited number of photos allowed in most MLS systems, it is important potential buyers learn about the area surrounding the house they’re considering.

Be sure to highlight such amenities as pools, playgrounds, walking trails and more. You can also create a mental connection for the buyer with close commuter connections such as train stations as well as nearby shopping centers.



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Make sure home inspectors play by the rules

Thu, 05/04/2017 - 11:51am

Most home buyers and sellers don’t think much about what might derail their purchase or sale. But here’s a sobering fact: One of every 20 sales contracts blows up along the road to closing. And roughly 1 in 4 runs into an issue that delays the scheduled settlement.

These statistics come from new survey research conducted by economists at the National Assn. of Realtors, covering the period of December 2016 through February.

Guess what’s the No. 1 real estate deal killer? Home inspections. Nearly one-third of all terminated real estate contracts crashed and burned because of the inspection results. Inspections also ranked as the No. 3 cause of delayed settlements, accounting for 13%.

Many or most of those deal-killing or delaying inspections probably turned up legitimate defects that the buyers needed to know about. But some went a little too far.

Take this example provided by Diana Dahlberg, broker and owner of 1 Month Realty in Kenosha, Wis. She was representing home buyers who hired a local inspector. When the inspector examined the furnace, Dahlberg recounted in a post on ActiveRain, a real estate networking and educational website, “he went crazy saying there was a cracked heat exchanger,” then turned to the seller, who was nursing her baby, and said, “If you don’t want to kill your baby, you better get a new furnace right away.”

Both the seller and the buyers “freaked out” at hearing this. Later that day the buyers canceled the contract. On subsequent inspection, Dahlberg told me, “there was no crack in the heat exchanger.” There was nothing wrong. The sellers were so upset that they took their house off the market.

In an interview, Dahlberg told me that some inspections “have become a nightmare” for sellers and their agents. Nonetheless, she strongly supports the concept and value of home inspections by competent inspectors — “We do need that third-party opinion” to be certain about the condition of a property. But they need to stay within strict professional norms and guidelines.

Walter Fish, owner of Bay Area Home Inspection LLC in the Marquette, Mich., area and a certified and licensed inspector, agrees. He says that furnace issues are a “common example” of where inspectors exceed their appropriate scope.

“Some inspectors have been known to call out [for replacement of] older furnaces” that are operating normally, Fish said. Why is that a problem? Because under widely recognized professional rules of conduct, inspectors are not supposed to “determine the life expectancy of any component or system.”

Fish is a member of the International Assn. of Certified Home Inspectors (InterNACHI), one of the largest trade groups for the profession. The association’s “residential standards of practice” spell out the basic do’s and don’ts for inspectors. Among the tasks they are not supposed to perform, according to the standards, are assessing:

— The life expectancy of the property or any components.

— The market value of the property or its marketability.

— The “suitability” of the property for any use or the “advisability” of its purchase.

— Aesthetic issues.

Scott Godzyk of Godzyk Real Estate Services in Manchester, N.H., described on ActiveRain one deal-damaging inspection he experienced that crossed all sorts of professional tripwires. A buyer hired an inspector he found online. The inspector’s final report noted among other problems:

— The roof is at the end of its 25-year life.

— The furnace hasn’t been serviced in years.

— The oven smokes when it’s turned on.

— Paint colors in several rooms “do not match.”

— Kids’ toys are a trip hazard.

All of which were curious findings because:

— The house was only 9 years old, so the roof was nowhere near its 25-year functional life.

— The furnace had been serviced during each of the preceding seven years, as the dated tags attached to it confirmed.

— The oven only smoked because the inspector turned it on without looking inside, where the sellers had a couple of plastic containers.

— Paint color match is not a matter for a home inspector.

— Kids’ toys do not convey with the house. Duh.

The takeaway here for you: As a seller, be aware of the standards of practice for inspectors. A good source is InterNACHI. As a buyer, search for certified or state licensed inspectors with solid references who will fairly and accurately report what you need to know about the house — not what you don’t.


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Deferring Federal Tax Liability with “Like Kind” Exchanges

Mon, 05/01/2017 - 9:05am

Whenever you sell a business or investment property and you have a taxable gain, you generally have to pay tax on the gain at the time of sale.  IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange.  Gains deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free.

The exchange can include like-kind property exclusively or it can include like-kind property along with cash, liabilities and property that are not like-kind. If you receive cash, relief from debt, or property that is not like-kind, however, you may trigger some taxable gain in the year of the exchange. There can be both deferred and recognized gain in the same transaction when a taxpayer exchanges for like-kind property of lesser value.

If you complete a 1031 like kind tax deferred exchange, you must follow the law and the IRS regulations very meticulously.   Timing, having a plan of action, and taking appropriate action is everything.  It helps to have a real estate broker with up to date knowledge of the like kind real estate markets.   One of the risks in the transaction is with 1031 exchange companies that hold money.

My recommendations:

  • I would ask for references and a track record when transferring large amounts of money with an intermediary company
  • Beware of schemes. Taxpayers should be wary of individuals promoting improper use of like-kind exchanges.  Typically they are not tax professionals.   Sales pitches may encourage taxpayers to exchange non-qualifying vacation or second homes.
  • Many promoters of like-kind exchanges refer to them as “tax-free” exchanges not “tax-deferred” exchanges.
  • Taxpayers may also be advised to claim an exchange despite the fact that they have taken possession of cash proceeds from the sale.
  • Read the IRS information fact sheet on 1031 exchanges
  • Review IRS form 8824
  • Retain a qualified certified public accountant that can help you plan and implement all aspects of the transaction.

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

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

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

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Avert These Common Property Management Mistakes

Mon, 05/01/2017 - 8:28am

The property management business can be tricky. There are many relationships to balance, not to mention contractual agreements and even laws that the manager must follow. Unfortunately, that means even the best in the business will have property management issues from time to time. We have detailed a few property management problems and solutions so you can avoid or resolve these concerns before they affect your business.

  1. Failing to have a written property management agreement. Of all the landlord mistakes, one of the biggest is failing to have a written property management agreement in place. A written contract is your most significant protection. It can prevent an angry customer from coming back and claiming you are failing to do your job. If you have the agreement in writing, there is never an argument about what you agreed to do or the details surrounding it. If by chance, the issue was so severe that it went to court, the agreement could save you a bundle, too!
  2. Lack of communication. Communication is a top property management skill. While many landlords are great communicators with either the client or the tenants, few are good at communicating with both. Putting in the extra effort to discuss any problems with all parties is not a difficult step, but it can offer incredible results for your organization.
  3. Ineffectively screening tenants. Of all the mistakes landlords make, the one that stings the most is inadequately screening tenants. While the “really bad” tenants who leave you with a mess are sure to stick out in your mind, even those who fall behind on rent or who leave after just a few months and cause you to spend more money on cleaning and marketing put a damper on your business. There are many high-tech screening methods out there today. Thus, make sure you compare the available products and choose one that will keep those costly tenants out of your properties.
  4. Not performing routine maintenance. Good landlords are always looking at their properties and taking note of any damage or issues that need repair. Routine maintenance is not always flashy, and at times can be burdensome. However, when you take care of the little problems on a regular basis, you will be less likely to need to deal with the significant problems down the road. As an aside, don’t feel like you have to do it all yourself. Sometimes you will get better results by hiring someone to take care of the more difficult or time-consuming tasks.
  5. Not handling money properly. Do you have a procedure in place for handling security deposits? Where does the money come to pay contractors? What do you do if a tenant leaves without notice and there is a “last month’s” rent on the books? Who receives these funds? Keeping all of your financials in check is just part of good property management. If you are not working with an accountant or bookkeeper, you probably should. He or she can help you know what needs to be tracked for taxes and may have suggestions on how to avoid “coming up short” at the end of the month. Money matters are one thing you do not want to neglect.

With some work, it is not hard to resolve most of the common property management issues that occur. The most important tip is to be proactive. By putting in some effort before the concern spirals out of control, you will assure a good experience for everyone involved!

The information provided herein is for advisory purposes only and AAOA takes no responsibility for its accuracy. AAOA recommends you consult with an attorney familiar with current federal, state and local laws.

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