Financing opportunities and federal funds are available to multifamily if you just know where to look
Illinois Sen. Everett Dirksen, perhaps the last great Congressional orator, didnât like spending the peoplesâ money. To make his point he once said: âA billion here, a billion there, pretty soon it begins to add up to real money.â
That quip has become synonymous with government overspending. When it comes to multifamily housing, though, most providers donât think Uncle Sam spends enough. But it turns out there is an appreciable amount of federal money going into apartment development that people just donât know about.
Indeed, you can stick a shovel in the ground just about anywhere and youâll find the federal government involved in multifamily and home lending. What weâre talking about here is the Community Development Financial Institutions Fund, a program better known for incentivizing business lending.
But the main CDFI fund operates several smaller, targeted programs, including a Capital Magnets Fund that financed almost a quarter of a billion dollars worth of multifamily housing during the six-year period from 2016 to 2021.
According to the Fundâs website, recipients used $246.6 million in CMF funds to finance or support 37,650 rental units. Indeed, the multifamily sector handily outpaced the fundâs home ownership component, which came to just 5,500 units and $37.2 million in disbursements.
The Opportunity Finance Network, a financial intermediary that has a coalition of 400 CDFIâs throughout the country, has reported significant real estate activity along with business lending by its members. The OFN touts its own intermediary multi-family and home mortgage programs in addition to aiding business lending.
OFN lending
The Opportunity Finance Network, a coalition of more than 1,400 CDFIs throughout the country, has reported significant real estate activity along with business lending. The OFN touts its own multifamily and home mortgage programs in addition to its business lending.
âThrough 2022, OFN member CDFIs have helped support the development or rehabilitation of nearly 2.4 million affordable housing units nationwide. And CDFIs nationwide have financed $2 billion annually in mortgages,â the Network claims. The investments help develop affordable and desirable rental homes throughout the nation as well as in Puerto Rico and the U.S. Virgin Islands.
Here are a few examples of apartment deals using OFN money:
- The Florida Community Loan Fund provided financing for the Fort Lauderdale Community Development Corp. in both 2015 and 2020 to sustain and rehabilitate 37 multifamily affordable rentals and a single-family affordable home.Â
- CDFI Pathway Lending of Nashville helped Catfish Moving Co. to find office and multifamily space in the Music City.
- In Maine, the Caleb Group turned to the Genesis Community Loan Fund, a local CDFI, for a $1 million construction loan in January 2019 to purchase and preserve multifamily units. In this case, the deal involved Norway Savings and was supported by a Federal Home Loan Bank of Boston grant and an investment from Bath Savings Institution.
Looking for more information or a support network on the investing side of rental properties?
Check out BiggerPockets! They provide resources and tools to help people learn about real estate investing and build wealth through rental properties. Their website offers a community of over 2 million members, educational content, networking capabilities, and software tools. BiggerPockets also publishes books and podcasts about real estate investing.
Looking to the future
The Citizen Potawatomi Community Development Corp. in Shawnee, Okla., hasnât done any CDFI multifamily transactions just yet. But Executive Director Cindy Logsdon says that âdoesnât mean we couldnât in the future.â
Her fund has looked into one deal that had retail on the first floor and rental housing on the upper floors before ultimately passing on it.
But Citizens Potawatomi has used CDFI Bond Guaranty money to build an industrial park. According to Logsdon: âif several large manufacturers came into the industrial park, they could create 1,000 jobs,â creating an opportunity for multifamily. After all, business lending is the CDFIâs forte and in recent years it has expanded into residential mortgages.
Similarly, Uncle Samâs New Markets Tax Credit Program was designed to emulate, on the business side, the Low Income Housing Tax Credit, which has financed multifamily housing for more than 30 years and is earmarked in the current budget for a significant increase in funding.
Even with its business orientation, the NMTC has still managed to fund more than $28 billion of real estate since its inception in 2000. And while rental housing doesnât qualify directly for an NMTC award, savvy developers and lawyers have found a workaround that makes it an essential tool for mixed-use multifamily. They do so by using the tax credit to finance the retail component on the lower levels and build apartments above, utilizing separate financing structures to do so.
One such development, the Sibley Building in Rochester, N.Y., has 10 different condominium-style regimes, including three housing-related ones for senior, market rate and workforce/affordable housing. While this particular deal didnât use the NMTC to develop the retail in the million square feet of space in the building, there are plenty that have.
For example, the Corporation for Supportive Housing of New York City received a $50 million allocation in a NMTC round a couple of years back. Its plans were to invest in homes that served low-income, high-health-need people who were homeless or at risk of homelessness or who resided in supportive housing.
Tapping the NMTC
CSH has received a number of NMTC allocations over the years. One transaction actually tapped funds from both the NMTC and the low-income housing tax credit for its Blackburn Building in Portland, Ore.
The project had a $15 NMTC million allocation to Central City Concern for a 51,000-square-foot health facility. The LIHTC component went towards 124 units of single-room occupancy and studio units.
On the Native American multifamily side, Native CDFIs are starting to tap both federal programs. The Native American Bank of Denver (which is also a Native CDFI) received a $50 NMTC million allocation in 2023 and McKinley Asset Growth Management of Alaska, also a Native CDFI, has received more than $100 million in several allocations.
While neither of the NMTC and LIHTC tax credits are in the billion dollar range, taken collectively, they have a lot of heft. And a billion here and a billion there⌠well, you know the rest.
Source:Â Multi-Housing News
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By Emily Koelsch
Investing in Rentals in HOAs
Homeowners Associations (HOAs) are becoming increasingly popular across the country. Fifty years ago, less than 5% of people lived in communities governed by HOAs. In contrast, around 25% of Americans are currently part of HOAs. Once thought of only in the context of condominiums, there are now homeowners’ associations for townhomes and single-family home communities too.
Given their growing popularity, more real estate investors are faced with the question of whether or not to buy rental properties in HOAs. To help you answer this question, hereâs an overview of HOAs, the pros and cons of owning rentals in HOAs, and tips for anyone considering investing in real estate governed by an HOA.
What is a Homeownerâs Association?
A homeownerâs association is a governing body that manages and regulates a residential community. The purpose of HOAs is to set rules that all members must follow to maintain established standards that benefit the whole community. Generally, HOAs are run by a board of directors elected by the HOA members.
When purchasing a property, the agent or property manager should disclose if itâs part of an HOA. You need to have this information from the outset because if you buy a property in an HOA, you are automatically part of the community and bound by its rules. You cannot opt-out.
Each HOA must outline all rules, regulations, and fees in their Covenants, Conditions, and Restrictions (CC&R). This is a public document that HOAs must file with the local county assessorâs office.
Benefits of Buying Rentals in HOAs
There are some distinct reasons that HOAs are becoming increasingly popular. Perhaps the most compelling, properties in HOAs maintain their value well and often appreciate at above-average levels.
HOAs also offer some distinct advantages for real estate investors:
- Amenities that help attract Tenants. Communities with HOAs usually have more amenities than other properties, like a gym, swimming pool, playground, or tennis court. These amenities help Landlords attract Tenants while also increasing rental values for units in the community.
- Fewer maintenance responsibilities. Owning a property in an HOA means less maintenance for Landlords and Tenants. HOAs usually handle landscaping, snow removal, and trash services. The result is less work for Landlords and the peace of mind that the property is well maintained.
- The Property and neighborhood stay in good condition. HOAs set specific standards for all properties and outdoor spaces. In addition, they have systems in place to ensure that all members comply with these standards. For Landlords, this is good for both property values and attracting Tenants.
- Mediation of disputes with neighbors. When conflicts arise in HOAs, the board helps to mediate and resolve disputes. This resource helps alleviate Landlord headaches that can come with difficult neighbors.
Disadvantages of Owning Rental Units in HOAs
As you might imagine, HOAs also have some substantial disadvantages for Landlords. Here are the most significant challenges investors should consider before purchasing a rental in an HOA.
- Rental restrictions. HOAs can set limits and regulations for renting properties in the community. Common Lease restrictions include limiting the number of Leases per year, establishing a minimum lease period for short-term rentals, requiring owners to live in the unit for a certain period, and capping the number of units in the community that can be rentals. Investors should always read the CC&Rs before purchasing a rental unit to be familiar with applicable restrictions. Also, itâs important to realize that HOA rules can change, so even if there arenât currently restrictions, thereâs always the risk that the board will add new restrictions.
- Management expenses. HOAs assess monthly, quarterly, or annual fees to cover the cost of maintenance and amenities. These fees vary widely based on the services and amenities provided, and this fee cuts into a Landlordâs monthly cash flow and annual returns. Itâs vital to include this expense when running the numbers on a property, and itâs also worth noting that fees are regularly reassessed and generally increase over time.
- Special Assessments. When an HOA board determines significant repairs or upgrades are needed, theyâll require a special assessment from all members to cover the expense. Special assessments are unpredictable costs for Landlords that directly cut into cash flow and returns.
- Interference with property management. HOAs can set rules and restrictions that interfere with a Landlordâs management of their property. For example, banning certain types of pets, setting specific Tenant Screening criteria, requiring Tenants to review and sign by-laws, and having strict requirements for upgrading or repairing your property. These regulations can increase management costs and Landlord headaches while also making it harder to find Tenants.
- More Landlord liability. When you own a property in an HOA, youâre responsible for complying with all rules and fees. If your Tenant violates rules, youâre ultimately the one who will have to deal with the HOA, resolve the issue, and pay any fines. Additionally, if you pass on HOA fees to a Tenant and the Tenant doesnât pay, youâll be responsible for this fee and any late charges.
Make your business an LLC
Structuring your business as an LLC can bring important advantages: It lets you limit your personal liability for business debts and simplify your taxes. Here, youâll find the key legal forms you need to create a single-member or multi-member LLC in your state, including:
- LLC articles of organization
- Operating agreement for member-managed LLC
- Operating agreement for manager-managed LLC
- LLC reservation of name letter, and
- Minutes of meeting form.
NOLO’s Form Your Own Limited Liability Company has easy-to-understand instructions, including how to create an operating agreement that covers how profits and losses are divided, and major business decisions are made. Youâll also learn how to choose a unique LLC name that meets state legal requirements and how to take care of ongoing legal and tax paperwork.
Tips for Investing in Rental Units in HOAs
There is no blanket answer to whether investors should buy rentals in HOAs. Instead, itâs an issue to address on a case-by-case basis. Here are some tips to help with this analysis:
- Always review the CC&R and be familiar with any rental restrictions that will impact your business.
- Analyze monthly fees to determine whether you can recoup these costs. For example, can you increase rent to cover the cost of amenities, and are the maintenance expenses comparable to the amount you would have to spend to keep the property in good condition?
- Consider the potential for a special assessment and have an emergency fund to cover this expense.
- Think through the risks associated with HOAs â for example, changes in rental restrictions or fees â and determine whether this is a risk youâre comfortable with.
Thinking through these tips will help you make an informed decision about rental properties in HOA. As you expand your portfolio, visit ezLandlordForms.com for investing tips, Tenant Screening Services, and state-specific Lease Agreements.
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The rental housing market expanded over the past decade thanks to a growing customer category â the single family property renter. As waves of interest rate increases and property value inflation priced many potential homeowners out of the market, consumers (especially young, upwardly mobile professionals) re-defined their expectations. They settled for tenancy over homeownership. However, their aspirations for âbig spaceâ living, combined with a growing preference for remote work situations, resulted in increased demand for single family property rentals. These new single family renters present opportunities and risks. Finding quality, long-term renters is a property managerâs dream. However, dealing with credit risks, scams, and delinquencies is always a nightmare. In this blog, we show single family property managers how automated leasing tools alleviate current operational challenges, accelerate qualified lead conversions, and effectively combat rental fraud.
1. Automate for Leasing Success in 2024
Despite the economic headwinds impacting the housing market, at large, the single family rental property market offers a silver lining.
Single family housing inventory is expanding, creating opportunities to capture new revenue from an expanding market of new renters.
The Department of Housing and Urban Development (HUD) recently reported that single family housing completions in January 2024, were 2.8% above the number in January 2023. Fannie Mae reported a similar growth trend by projecting that 2024 single-family housing starts to be 5.7 percent higher than in 2023.
While this increased supply and demand bodes well for all involved, single-family operators still face operational challenges before achieving leasing success.
For instance, because the parallel growth in inventory and demand is likely to hold rental rates steady, operators must find new ways to strengthen their bottom line. Also, in order to maintain high occupancy rates, property managers must accelerate leasing velocity and convert more leads. All the while, inflationary pressures continue to constrain operating budgets and staffing shortages persist. Increasingly, property managers must âdo more, with lessâ.
As a result, property managers are discovering that automation alleviates many of their current operational pressures and even offers the potential to achieve ROI gains.
âLeasing automation is the ultimate ROI enhancement,â Rently COO Andre Sanchez said. âIt plays a key role in facilitating better, more personalized experiences for customers while moving them through the entire leasing process faster and more efficiently.â
By integrating leasing automation tools into their lead management, operators have seen conversion rates of 30 percent or more. In fact, often and ideally, by the time customers interact with a leasing associate, they are ready to sign a lease.
The decision to automate is an important first step towards leasing success. However, equally important is choosing which tasks to automate in order to still create a positive and engaging renter experience.
2. Become a Smooth Operator
In order to preserve renter engagement, while automating parts of the leasing process, itâs important for managers to optimize the entire renter journey.
Renters will hardly notice automations threaded through their journey if their cohesive experience is positive and smooth. In fact, by integrating multiple leasing steps into one seamless (frictionless) experience, automation benefits both renters and managers.
To increase leasing velocity, itâs essential for property managers to create an airtight âlead-to-leaseâ funnel that accelerates renter momentum and quickly drives conversions.
By using new and proven automated leasing tools, single family property managers can make sure to keep renters engaged and impressed during every step of the renter journey.
3. Introduce your property with dynamic online listings
Not so long ago, property listings could be found in newspapers or posted on flyers in leasing offices. With the Internet came exciting new marketing possibilities.
Internet listing sites (ILS) offer an effective way to reach millions of online renters and maintain constant contact with the marketplace.
Automating property listings enables syndication across multiple listing sites, creating a strong multiplier effect for lead generation.
In addition, the ubiquity of mobile devices makes it possible for renters to see online listings from anywhere, at any time, with real-time notifications of property availability. According to Zillow (2022 Report), 74% of renters now search for properties online using a mobile device, and 60% use an app.
Online listings are your first point of contact with a prospective renter. Make sure your listing includes the automations to keep that renter connected and moving forward through your marketing funnel. For instance, adding rental criteria to property listings quickly identifies qualified leads and saves time by screening out unqualified prospects.
4. Quickly set a tour date with automated tour scheduling
Leasing professionals understand the challenge of managing countless leads and trying to schedule them all for property tours.
However, imagine being able to instantly respond to 100% of your online leads with an automated option to quickly schedule a tour directly from a listing site. This feature is especially appealing to renters accustomed to on-demand experiences because it allows them to schedule and confirm a tour immediately after finding a listing that interests them.
Auto-scheduling tours accelerates leasing velocity by quickly moving your pre-qualified rental prospect from the initial interest phase to an onsite touring commitment.
In addition, by eliminating the time and hassle of manually arranging appointment logistics, your leasing teams can better spend their time on lead engagement at more important points in the renter journey.
Tour auto-scheduling saves property managers up to 30 minutes per requested showing. Multiply that by 100 showings, and youâve just reclaimed a whopping 50 hours! Thatâs 50 hours your team can redirect towards other critical aspects of your business.
5. Show properties faster with automated tours
When a renter schedules a tour, an automation can offer them the choice of scheduling a self-guided tour, or an agent-led tour.
Self-guided property tours combine a user-friendly mobile app or web experience with property smart access devices like lockboxes or smart locks, creating a secure and independent property-viewing experience.
Self-guided tours offer managers significant time savings by eliminating the need to travel to and spend time on-site. In addition, self-guided tours increase overall touring traffic by 25%, boost lease conversions by 2% and reduce a propertyâs time on the market by 75%.
Originally designed to accommodate the 42% of renters preferring tours outside regular business hours, self-guided tours have widespread appeal. The ability to tour when convenient, combined with managing the entire process from a mobile app, resonates well with modern renters and property managers alike.
While self-guided touring has become a popular option, some renters still prefer the personal interaction of an agent-led tour. For these renters, automations also exist to streamline their experience. For example, when scheduling their tour, renters can directly sync to an agentâs calendar to find an opening and make a reservation. This eliminates time-consuming staff coordination.
6. Combat rental fraud with automated rental screenings
Single family rental properties are a serious investment, and itâs critical for operators to find renters with the financial stability to meet monthly payment obligations. Avoiding the drama and cost ( $7,685 per instance!) of evictions is a priority.
However, identifying high-risk renters is often a real challenge:
Source: NAA
Furthermore, the average renter screening process takes anywhere between 4-10 hours per rental application. In addition, 72% of property managers also noted the extra time and attention required to make sure that their rental forms meet the guidelines of the Fair Housing Act (FHA). This is all valuable staff time spent on just one leasing task!
It should come as no surprise, then, that automating the applicant screening process to activate multiple verifications at the same time, is a major time-saver.
It should not be complicated or stressful for prospects to tour and apply to rent a property. Similarly, it should be easy for managers to collect applications and identify quality residents. The smoother the process, the better the experience for everyone involved.
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7. Rentlyâs unique leasing automations
Years ago, Rently recognized that leasing automation has the potential to greatly benefit both renters and property managers. Based on real-world implementations, Rently saw that automations create an enjoyable renter journey, streamline leasing operations, accelerate lead-to-lease conversions, and enhance security. Therefore, Rently successfully integrated leasing automations into every step of the leasing lifecycle, from listings to leases.
Rently Listings, our companyâs increasingly popular ILS receives 10 million visits and facilitates 3 million self-guided tours each year. Rently Listings is the #1 lead generation tool to reach todayâs tech-savvy renters who want to tour on demand.
Rently Listings helps millions of renters find smart home properties that offer self-guided tours. Conversely, Rently Listings provides property managers with immediate exposure to a giant universe of renters who desire to tour on demand.
Rently Listings also automatically syndicates to more than 30 other listing sites. Therefore, property managers save hours of valuable time because they no longer have to manually upload/update listings to multiple sites. They can simply use Rently Listings to update all their listings, on all sites, at once!
Rently Listings automatically syndicates to the following ILS:
In addition to creating a listing platform that quickly drives prospects to smart home properties, Rently also offers groundbreaking, automated renter security and screening features. These save property managers hours â even days â completing the due diligence required to ensure quality tenants.
Even before a rental prospect enters a property for a tour, Rently completes a stringent ID verification process and ensures that prospects match the rental criteria set by a property manager. As a result, only qualified and verified renters gain access to properties.
Similarly, Rentlyâs screening automations also support post-tour leasing steps. For example, Rently automations prompt prospects to submit an application immediately after they tour. This engages renters at the peak of their interest and increases the number of applications submitted.
Once applications are submitted, Rentlyâs screening empowers managers to do their best due diligence. By combining six critical renter screenings into one automated process, Rentlyâs screening saves time and eliminates the hassle of verifying renter information with several third-party service providers.
Rentlyâs Screening auto-verifies the following renter data:
- Government-issued ID and selfie photo are matched, using facial biometrics before a self-guided tour
- Top fintech partners verify income documents, pay stubs, and W-2 forms
- TransUnion applies ResidentScore⢠criteria (rental industry specific) to verify credit ratings, bankruptcy, eviction, and criminal records.
These automations expedite the screening process so that renters receive faster responses and managers accelerate lease signings.
Finally, Rently also offers a unique approach to data centralization and cross-platform integration.
From Rentlyâs centralized data dashboard, property managers are provided a single view of their propertyâs leasing automations. From there, they can track lead status as they make their way through the marketing funnel and engage with renters, in real time, at critical moments. In this way, automations allow managers to focus on what really matters â building relationships and closing deals.
To further maximize its value, the data collected by Rentlyâs leasing automations is easily integrated across popular PMS platforms. This is accomplished thanks to open APIs and customized plug-ins, such as those for Appfolio and Buildium.
Conclusion
Whether managing a small or large portfolio, single family operators benefit by using automated leasing technology to optimize operations, create a frictionless renter experience, and screen out high-risk rental prospects.
For Rently, automation is a leasing enhancement. Itâs how we help property managers streamline time-consuming tasks and simplify operations to achieve larger business goals.
We see leasing automation as helping (often understaffed) property management teams move renters through the entire leasing process faster, while still creating a personal and positive experience.
Provided by Rently
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By Emily KoelschÂ
Digital landlord is an increasingly popular term, so we thought weâd dig into what it means for real estate investors. Before getting started, itâs important to note that there are two different types of digital landlords: those that manage digital assets and those that use technology to manage physical real estate.
Weâll discuss the second category â Landlords that leverage software and technology to manage their real estate portfolios. To help you understand this growing category of Landlords, weâll discuss what digital Landlords are, why this strategy is increasingly popular, and how you can get started as a digital Landlord.
What It Means to Be a Digital Landlord of Residential Real Estate
A digital Landlord is someone who uses technology to self-manage their rental property. A true digital Landlord uses technology in every phase of the rental process, including:Â
- Marketing the property
- Rental applications and tenant screening,Â
- Lease creation, signing, and renewalÂ
- Collecting rent and issuing rent receiptsÂ
- Sending official notices
- Tenant communicationÂ
- Keyless entry
For example, a digital Landlord markets their property using online platforms like Zillow; provides applicants with an online rental application; screens Tenants using online screening services; creates a Lease electronically that can be reviewed and signed online; and uses electronic rent payment systems.
The Benefits of Being a Digital Landlord
There are some clear benefits to being a digital Landlord, and weâre seeing more investors take this approach. The biggest benefit is that it makes property management more efficient. This increased efficiency makes it possible for more investors to manage their own rentals.
Real estate investors benefit from self-managing their properties because it allows them to select Tenants, oversee repairs and maintenance, and stay in communication with Tenants. Unfortunately, property management can be time-consuming and stressful if you donât have the right tools. Digital landlords take advantage of technology to automate more tasks and make property management less time-consuming.
Another huge benefit for digital Landlords is flexibility. They can manage properties from anywhere and have more control over the hours they dedicate to property management. This means investors have the flexibility to buy properties out of state, move, or travel.
Beyond these two advantages, there are several other benefits of being a digital Landlord:
- Consistently for Tenants. Automated systems and procedures provide consistency for Tenants. This consistency improves Landlord and Tenant relationships and improves your Tenantâs experience.Â
- Necessary records and documentation. Effective systems for property management help you stay organized and ensure you have the documentation you need for taxes and dealing with Tenant issues.Â
- Preventative Maintenance. Leveraging technology makes it easier for Landlords to be proactive about preventative maintenance and repairs, which helps keep rental units in good condition.Â
- Scalability. Once you have property management systems in place, itâs easy to grow your real estate portfolio and continue to self-manage your properties.Â
Looking for the next level of landlord software before handing off to a property manager?
Hemlane is a software that is built to grow with your needs as a landlord.
For a minimal amount, there’s a really good basic package but what we love is the option to upgrade and add 24/7 maintenance management on.
Hemlane offers complete financial support as well. You can link multiple bank accounts for direct deposit rent payments, add automatic late fees, sends reminder notifications to your tenants, and has a detailed profit and loss statement that can includes automatic and manual uploads of income and expenses.
It gets better! If you reach a place where you are ready to hand off management to a property manager, Hemlane has that too under their âCompleteâ option. You can try Hemlane out FREE for 14 days (no credit card required) to see if it’s a good fit for you!
The Tools You Need to Get Started a Digital LandlordÂ
The key to becoming a successful digital Landlord is having the right software, resources, and tools. Each Landlord develops their own systems, but there are a few âmust havesâ to be successful as a digital landlord.
Hereâs our list of tools you need to get started as a digital Landlord.
- Online rental application and tenant screening services.Â
- Electronic Lease creation, signing, and storage.Â
- A system for Tenant communication, including both informal check-ins and maintenance requests.Â
- A system for sending official documents like Notices and Lease Renewals.Â
- Electronic rent collection.Â
Partner with ezLandlordForms to Become a Digital Landlord
If youâre interested in managing your rental properties digitally, visit ezLandlordForms.com. We have the tools you need to become a digital Landlord, including Tenant Screening Services, state-specific Lease Agreements, and property management forms.Â
Plus, we have a customer service team available seven days a week to help you implement these tools and get started as a digital Landlord. Visit ezLandlordForms.com to create a free account or chat with our team.
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AAOA is well known for its knowledgeable and helpful customer service team. Throughout the day, they are available to answer all types of questions from AAOA members ranging from âHow do I place an order?â to âCan you help me analyze this credit report?â
But one question that is particularly moving is when someone calls and says, âMy parent(s) recently died and left me their apartment buildings. I need to find a new tenant and I donât know anything about being a property manager.â
âWhile there are many ways to mishandle an inheritance, chief among them is a lack of preparation,â says Forbes. âParents may spend time and money to ensure that their estate is organized properly, but those efforts may be wasted if they don’t also prepare their heirs to manage the properties they have inherited.
To empower future generations to oversee and sustain inherited wealth, it is necessary to equip them with the skills and knowledge they need to do so.â To help the next generation thrive, take the following proactive steps:
DEVELOP A PROPER ESTATE PLAN
Forbes continues, âItâs easy to neglect estate planning. Aside from the discomfort of facing your own mortality and the thought of your children navigating the world without you, estate planning can require considerable effort and expense.â
Thatâs probably why only 32% of Americans have created a willâand even fewer people have taken the care to construct a thoughtful estate plan. Nonetheless estate planning allows you to reduce costs and maximize the inheritance for heirs.
Leaving Real Estate in Your Will
Your last will and testament is just one section of your estate plan. It sets out how you want your assets to be distributed upon your death. You can leave real estate in your will, but there are pros and cons to doing so. When real estate is left in a will, the debt on it, i.e., any mortgages or liens, must be paid off immediately. This may or may not be financially feasible for your beneficiaries. Furthermore, if you have left the property to more than one individual, each of them owns an undivided interest in it. It is vital that you appoint a reputable sponsor to assist your heirs in building and preserving your generational wealth.
Leaving Real Estate in a Trust
Setting up a trust is another way that you can leave real estate to your heirs. A trust is a separate entity that can own real estate, which is then managed by a trustee. You can place real estate in a living trust and then act as the trustee to control and benefit from it during your lifetime. Then, upon your death, the property transfers to the beneficiaries of the trust.
Leaving Real Estate Utilizing the Deed
to others can have an impact on you as the property owner as well as your beneficiaries when you are gone. The deed gives specific rights to its parties, both in how they own the property, and, in some cases, at what point they take ownership of it.
Estate Planning You Can Trust
Simple. Easy. Trusted.
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FAMILIARIZE YOUR HEIRS WITH YOUR PROPERTIES
Once you have created your estate plan, it is time to tell your heirs about the details and what is expected of them when they inherit your multifamily properties. You have worked hard to build your portfolio and you want to be assured that it will continue to flourish once youâre gone.
Review Your Holdings and Your Plans for Them
Even if your heirs have visited your investment properties over the years, it is quite another thing to see them through the eyes of a future landlord. Visit the properties with them, introduce them to your tenants and give them as much information as possible about the building as you can, including procedures, problems, maintenance issues, etc. Set up a meeting with your property manager if you have one.
Introduce Your Team
Of course, your heirs would assume that you have an accountant, attorneys and real estate agents to support your financial needs. This is a good time to introduce these experts to those who will be inheriting your multifamily property. Your heirs should also meet your maintenance team, gardener and anyone else who helps you keep your holdings in good shape. When it comes time to replace a tenant, your heirs need to know how to find someone new. In addition to telling them where and how to publicize a vacancy and how to prepare it for a new tenant, they should have your username and password for your AAOA member account. AAOA is a very important part of your team and is ready to help your heirs through the process of ordering a tenant credit check and a tenant screening report and helping them analyze the results
CONCLUSION
It is smart to discuss your wishes with your family in advance, so there are no surprises and everyone is on the same page. It will benefit both the heirs and the propertyâs tenants and employees. And you can be comforted by the fact that your legacy will continue to flourish according to your wishes.
NANCY ABRAMS, Assistant Editor American Apartment Owners Association
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By Bradley Barth
Rental income property owners need to fully understand the Corporate Transparency Act (CTA) of 2021, a federal law that took effect on January 1, 2022. The law mandates that all âreporting companiesâ (LLCs, Corporations, LPs and others) must submit a report to the Financial Criminal Enforcement Network (FinCEN) of the U.S. Treasury disclosing specific information.
- THIS INFORMATION INCLUDES DETAILS ABOUT:
- Beneficial owner(s) of the reporting company.
- The individual (referred to as the âapplicantâ) responsible for establishing
the company by submitting its formation documents (such as articles or
a certificate of organization, articles of incorporation, or a certificate of
partnership) to a state agency, for example a Secretary of State.
WHAT IS A BENEFICIAL OWNER?
A beneficial owner is defined as an individual who, directly or indirectly, holds substantial control over the entity or owns or controls at least 25% of the entityâs ownership interests through contracts, arrangements, understandings, relationships, or other means. If your living revocable trust holds any of your properties, then a review of your trust must be done to identify âcontrolâ persons within the terms of the trust.
CORPORATE TRANSPARENCY ACT
(CTA) FINES
Beginning January 1, 2024, the Corporate Transparency Act began enforcing reporting companies to file. Failure to file a FinCEN report by the due date can result in significant fines. Specifically, FinCEN can impose a $500/day fine for each day that the Corporate Transparency Act form remains overdue. The CTA also includes provisions for criminal penalties in cases of willful violations of the law.
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ARE YOU EXEMPT?
Itâs worth noting that nearly all entities formed in the U.S. fall under the category of reporting companies, regardless of their formation date. However, there are exemptions comprising entities that are not considered reporting companies and are thus not obliged to submit a FinCEN report. Certain small businesses, with fewer than 20 employees and less than $5 million in gross receipts or sales, are exempt from the reporting requirements. Additionally, certain types of entities, such as publicly traded companies, are also excluded from compliance. If your company is not exempt from the CTA, it qualifies as a reporting company and must file a FinCEN report. If you own your property in an LLC or other legal entity, you are most likely required to file the FinCEN report. If you own your property in your own name or your living trust there is another important topic to consider, which is your liability exposure. You have unlimited exposure to all of your assets from a liability at your property if you do not own your property in a proper legal structure.
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By Emily KoelschÂ
With changing economic and market conditions, some Landlords are deciding to sell their rental property with Tenants in place. There are various reasons to do this â for example, wanting to take advantage of strong markets, needing cash for other opportunities, or no longer wanting to be a Landlord.Â
There are some distinct advantages and disadvantages to selling a property with Tenants in place. If you decide to buy or sell a property with Tenants, you must know and respect your Tenantsâ rights.
To help you do that, hereâs an overview of those Tenant rights and tips for making the process go smoothly.
Notice Requirements When Selling a Property With Tenants in Place
Tenants have a right to receive an official Notice of Sale of Property. This Notice should be detailed and include specifics about when youâre putting the property on the market, the notice Tenants will receive before showings, and any other Tenant rights or responsibilities.Â
When drafting this Notice, look at your Lease Agreement and state laws. Some states have specific timelines for when Landlords must give notice. Additionally, good Lease Agreements include language about Notice of Sale and Notice of Showings.
Here are some tips for drafting this Notice:
- Review your Lease and make sure you comply with all terms;Â
- Review state and local laws to ensure compliance with all requirements;Â Â
- Include as much detail as possible;Â
- Tell Tenants how much Notice you must give before showings;Â
- Discuss the Tenantsâ rights and responsibilities;Â
- Encourage Tenants to contact you with any questions or concerns.Â
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The Lease Agreement Is Enforced Even if Ownership Changes
One of the most essential things for Landlords and Tenants to understand is that a fixed-term Lease Agreement remains in effect even if ownership changes. The Lease isnât tied to the Landlord; instead, it remains with the property and is in full effect until the end of the Lease period.
Here are some Lease-related tips when selling a property.
- Tenants are understandably anxious when they hear that their home is being sold. To ease their concerns, let them know that their Lease terms wonât change.Â
- A strong Lease Agreement can make your home more attractive to investors. Investors are bound by the terms of the Lease. Theyâll be more comfortable with a thorough, state-specific Lease Agreement.Â
- To protect your Tenant, put everything in writing. For example, if the Lease doesnât include a Pet Addendum or address pets, the new owner could tell your Tenants their pets are not allowed. Add any needed Addendums to your Lease before selling the property.Â
- At the end of the Lease term, Tenants are entitled to their security deposit. At the time of the sale, Landlords should transfer the deposit and any accrued interest to the new owner. Â
Effectively Marketing & Selling a Property With Tenants in PlaceÂ
Even with proper Notice and a good Lease, it can be tricky to sell an occupied rental property. The process is stressful for Tenants and presents uncertainty for buyers. Thankfully, there are some ways to make the process go smoothly.
With that in mind, here are some tips to help you market and sell an occupied rental.
- Make sure Tenants are current on rent. If Tenants are behind, it makes your property less attractive to investors.
- Offer incentives to encourage Tenants to be cooperative during the selling process. Tenants can help by keeping the property clean, leaving during showings, and staying current on rent. To encourage cooperation, consider offering incentives like gift cards to local restaurants, a night at a hotel during an open house, or a rent discount while the house is on the market.Â
- Communicate well with Tenants throughout the entire process. Good communication includes coordinating showings around their schedule. Ask your Tenants when itâs convenient to show the property and, whenever possible, schedule showings during these times.Â
- Even if you donât plan to sell a property, your Lease should always include language about a Landlordâs right to sell a property.Â
- Tenants are not required to clean or prepare the property for showings. To ensure itâs in good condition, offer to have it professionally cleaned.Â
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So, a few years ago we bought a 4-plex that was located within the confines of an HOA or Homeowners Association.
And the numbers worked, so that was great,
And we were told that they handle a lot of the landscaping and care for the parking and deal with all the trash again, which was great.
But we made a crucial mistake and did not thoroughly read the bylaws, which is all on us. There was one item in there that made a really big difference on how well this new purchase would play out.
So, this week on the podcast, we are talking all about what it means to own a rental property within an HOA.
There are several pros and cons to Homeowners Associations. Some aspects can be fantastic when owning a rental governed by them and others can really affect the value of your rental and the ability to rent it.
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By Jason Sorens
The Washington State House has passed a bill to cap rent increases at 7 percent a year. The Senate has yet to vote on it, and the governor has not taken a position. If enacted, this law would hurt renters, including low-income renters.
Advocates of the legislation call it ârent stabilizationâ rather than ârent control,â because ârent controlâ has gotten a bad name over the years (and for good reason). But in practice, it works the same way.
Capping rents means lots of people will want to rent at the capped rate, but fewer units will be available to rent, creating a shortage. After all, owners of apartment buildings can put their units to alternative uses, selling them off as condos, converting them to office spaces, occupying the units themselves, or simply leaving them vacant.
In the long run, rent caps encourage apartment owners to skimp on maintenance as well. So fewer units are available, and they are of lower quality
The Washington legislation exempts apartments built in the past 10 years. But the law could still discourage new apartment construction. After all, builders have to keep in mind the possibility that 10 or 15 years from now, those new units themselves will be added to rent stabilization. This is precisely what has happened in New York over and over again.
Once a place adopts rent caps, itâs very hard to un-ring the bell and make investors feel safe again about building new apartments.
Advocates of rent stabilization say that âvacancy decontrolâ â letting rents adjust when a tenant moves out â makes the legislation less harmful. But rent stabilization makes tenants less likely to want to move out. That makes it harder for young people and workers moving to an area to find a place to rent, and keeps people locked into locations where it might not make sense for them to live anymore.
In markets that have had rent caps for many years, thereâs even a well-known scam, described in Tom Wolfeâs Bonfire of the Vanities, whereby a renter pretends to still occupy a unit, while subletting it to someone else, to avoid vacancy decontrol.
Advocates of rent stabilization also say that a high rent cap, like one that limits a one-year increase to 7 percent, is less harmful than traditional rent control. But itâs no defense of a policy that it might cause only a little harm. And in any case, a 7-percent cap could cause a lot of harm.
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Why might a housing provider need to raise rent more than 7 percent in a year?
First, inflation might run above that rate. We just went through a year in which inflation topped 9 percent. It could happen again.
Second, even if inflation doesnât run that high, rent inflation could run that high if land-use regulations have choked off housing supply and demand is growing. Again, the recent pandemic is a case in point: Americansâ demand for housing went up because people were spending more time at home, but a lot of places did not let property owners build lots of new units. Last year, annual rent growth topped 10 percent in several markets that have limited the supply of new homes.
Third, repairs and renovations can be costly for housing providers, and the value of these improvements, especially after a tenant has stayed several years and if building codes change, could justify a rent increase of much more than 7 percent.
Fourth, the city of Seattle requires a court order to evict a tenant. For instance, if the tenant is involved in drug activity, the housing provider has to prove it in court. But a housing provider might prefer not to get the police involved. Sometimes a rent increase is the only realistic way to get rid of a problem tenant. In this way, just-cause eviction laws and rent stabilization laws interact to make it extremely difficult to remove tenants who are damaging the property, annoying their neighbors, or engaging in illegal activity.
The economic research on rent caps shows unequivocally very large economic losses, even for tenants of those units themselves. A recent study of San Francisco rent caps shows that after adoption, corporate housing providers reduced supply by 64 percent, while individuals reduced supply by 14 percent. Perhaps the definitive study of the welfare effects of rent control in New York, published in Journal of Urban Economics, found that even tenants in rent-capped units suffered from the policy.
Thus, itâs no surprise that only 2 percent of top economists agree that âordinances that limit rent increases for some rental housing units, such as in New York and San Francisco, have had a positive impact over the past three decades on the amount and quality of broadly affordable rental housing,â while 81 percent disagree.
Rent caps also have unintended consequences in other markets. Rent caps reduce the value of multifamily properties, because owners and investors expect to earn less. In New York, a recent tightening of ârent stabilizationâ drove down multifamily propertiesâ values by more than 30 percent, leaving some housing providers with negative equity and encouraging foreclosure. As a result, a major housing lender has incurred large losses, and investors are worried it could go bankrupt.
Instead of rent caps, cities and states can make housing affordable by letting people build more of it. Thatâs just what has happened in the last year in several Sunbelt markets. Investors are even complaining that multifamily has a âsupply problem,â meaning too much supply, resulting in rent declines.
Just about the worst way to âhelpâ renters is by punishing property owners for providing rental housing, which is just what rent caps do, regardless of whether they call them ârent controlâ or ârent stabilization.â
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In People vs. Commons West, LLC, the Cortland County New York Supreme Court ruled the New York Source of Income Antidiscrimination statute (âSOIAâ) to be unconstitutional. The New York Human Rights Law (Executive Law article 15) was amended in April 2019 to make it an unlawful discriminatory practice to refuse to rent or lease housing accommodations to any person, or group of persons, based on their âlawful source of income â
As defined in the Human Rights Law, âlawful source of incomeâ specifically includes âany form of federal, state, or local public assistance or housing assistance including ⌠section 8 vouchers ⌠whether or not such income or credit is paid or attributed directly to a landlordâ Pursuant to section 8 of the United States Housing Act of 1937, the federal government operates the Housing Choice Voucher Program that provides housing assistance to eligible low-income families by giving subsidies to landlords who rent apartments to them
Respondents own and operate numerous residential rental properties in the City of Ithaca. The New York State Attorney General (âNYSAGâ) commenced a proceeding alleging that respondentsâ refusal to participate in Section 8 constitutes impermissible source of income discrimination in violation of the Human Rights Law, and seeking (1) a permanent injunction enjoining respondents from refusing to rent or lease apartments to recipients of Section 8 housing assistance; (2) restitution for consumers injured by respondentsâ conduct; and (3) the imposition of penalties and costs. Respondents moved to dismiss the petition or alternatively, for an order granting discovery.
Respondents first contend that SOIA is unconstitutional because it compels landlords to participate in Section 8 â which is a voluntary program under federal law â thereby impermissibly requiring landlords to waive their rights under the Fourth Amendment of the US Constitution. A landlord cannot accept a Section 8 housing voucher as payment for rent without agreeing to participate in Section 8 by entering into a Housing Assistance Payment (âHAPâ) contract with a Public Housing Agency (âPHAâ) .The HAP contract must be in the form required by the Department of Housing and Urban Development.
The HAP contract requires a participating landlord to consent to inspection of âthe contract unit and premises at such times as the PHA determines necessary,â and to provide the PHA, the Department of Housing and Urban Development, and the Comptroller General of the United States âfull and free access to the contract unit and the premises, and to all accounts and other records of the owner that are relevant to the HAP contract,â which includes access to âany computers, equipment or facilities containing such recordsâ.
The âpremisesâ are â[t]he building or complex in which the contract unit is located, including common areas and groundsâ. Respondents contend, therefore, that SOIA violates a property ownerâs Fourth Amendment rights by giving the owner no choice but to consent to these inspections by entering into a HAP contract.
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NYSAG agrees that Section 8 is a voluntary program, but contends that the Human Rights Law does not mandate participation in Section 8 because the law âmerely prohibits [respondents] from denying an applicant for an apartment based on their source of income, which includes Section 8 vouchersâ
In 1967, the United States Supreme Court established the principle that administrative searches of buildings to ensure compliance with a municipal housing code are significant intrusions upon the interests protected by the Fourth Amendment The New York Court of Appeals specifically held that laws which authorize inspections of residential rental properties without either the consent of the owner or a valid search warrant violate the Fourth Amendment, and specifically noted that a property owner cannot be indirectly compelled to consent to a search.
The court ruled that the NYAGâs argument is fundamentally flawed for the simple reason that, a landlord cannot accept a Section 8 housing voucher as payment for rent without agreeing to participate in Section 8, which, in turn, requires that the landlord authorize warrantless searches of the rental property and the landlordâs records. The NY Appellate Division has expressly held that similar SOIA statutes adopted by municipalities prior to the April 2019 amendment of the Human Rights Law required a landlord to accept Section 8 vouchers, effectively compelling the landlordâs participation in the otherwise voluntary program Thus, although Section 8 is a voluntary program at the federal level, the source of income protections provided by the Human Rights Law would necessarily compel a landlord to participate in Section 8 to obtain reasonable rent for an apartment rented or leased to a person who is eligible to receive Section 8 assistance.
A law may not coerce property owners into consenting to warrantless inspections in derogation of their constitutional rights by conditioning their ability to rent real property on providing such consent, which is precisely the effect of the source of income antidiscrimination statute. Thus, by requiring landlords to accept Section 8 vouchers, SOIA necessarily compels landlords to consent to warrantless searches of their properties, in violation of the Fourth Amendment.
Similarly, SOIA further violates the Fourth Amendment by compelling landlords to consent to warrantless searches of their records. The NYSAG has not identified any law or regulation requiring respondents to maintain specific business records, and renting residential, Accordingly, SOIA is unconstitutional to the extent that it makes it an unlawful discriminatory practice to refuse to rent or lease housing accommodations to any person, or group of persons, because their source of income includes Section 8 vouchers.
Based on the foregoing, respondentsâ motion to dismiss was granted, and the NYSAGâs petition was dismissed, with prejudice.
Source: Friedman & Ranzenhofer
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