RENT Magazine discusses the latest investing, legal, screening, and tech trends in the rental industry. Contributors include attorneys, tax experts, investors, and real estate influencers. Stay in the know and read RENT Magazine for FREE.
1 SIMPLE STEP TO BOOST ENERGY SAVINGS ON NEW WINDOWS
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SUMMER 2023
TO UPGRADE NOT TO UPGRADE OR PAGE 60
PAGE 85 CHECK THEM OUT
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SPOT FAKE PAY STUBS AND VERIFY EMPLOYMENT HOW TO
SMART LOCKS, WI-FI & ACCESS CONTROL SOFTWARE A BEGINNER'S PLAYBOOK: PAGE 51
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BEST SUMMER PROPERTY MANAGEMENT TIPS PAGE 43
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THE OFFICIAL PUBLICATION OF THE AMERICAN APARTMENT OWNERS ASSOCIATION
AAOA.COM
TEAM VP Robbie Cronrod Editor in Chief Alexandra Alvarado Contributing Editors Allen Artcliff-Cronrod Nancy Abrams Contributors Adrian Smude Andrea Hardaway Elizabeth Campbell Garrett Sutton, Esq. Gary Gregory Gemma Smith Gita Faust Itai Ben-Zaken J Scott Jason Kogok Jen and Stacy Conkey Jeramie Worley Kathelene Williams Kaylee McMahon Margaret Stagmeier Matt Arnold-Ladensack Matt Picheny Michael P. Currie Michael Zuber Nancy Abrams Norm Spivey Pamela Goodwin Richard D. Gann, JD Scott Varney Shiral Torres Steven Rozenberg Ted Sutton Ashley Wilson Brad Mushovic Daniel Sharabi Dwight Kay
CONTENTS
05 08 13 18 22 27 35 30
WHEN IT COMES TO TAXES, TIMING IS EVERYTHING! FAIR HOUSING AND DISABILITIES: OBESITY, SMOKING, AND HOARDING BRICK WALL RE-STABILIZATION FOR LANDLORDS: A SUPERIOR APPROACH HOW TECHNOLOGY AND AI ARE REVOLUTIONIZING LANDLORD INSURANCE
COSTAR RENTAL MARKET UPDATE: WHERE IS RENT GROWTH DECELERATING THE MOST?
UNLOCKING EFFICIENCY: THE ROLE OF RATIO UTILITY BILLING FOR ACCESSORY DWELLING UNITS
6 POTENTIAL BENEFITS OF EXCHANGING INTO DELAWARE STATUTORY TRUST PROPERTIES
THE ROLE OF FINTECH IN PROPERTY MANAGEMENT: ADVANCEMENTS AND OPPORTUNITIES
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Welcome
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CELEBRITIES ON THE MOVE
BEST SUMMER PROPERTY MANAGEMENT TIPS
The Summer 2023 issue of RENT is packed with articles to enlighten property managers and landlords. To that end, we offer new information on maintenance issues, such as brick wall re- stabilization, smart locks, and getting tax credits for window replacement. As always, our experts share their advice on taxes, 1031 exchanges, financing multifamily deals and the economics of unit upgrades as well as their best summer property management tips. Other timely articles for you to enjoy are How to Spot Fake Pay Stubs, How Technology and AI are Revolutionizing Landlord Insurance and The Role of Fintech in Property Management. Don’t miss the follow-up to our story on AAOA member Matt Arnold-Ladensack who has realized his dream of building a guest ranch in Whitefish, Montana. And a warm welcome to CoStar who are now presenting our quarterly Multifamily Market Summary. Have a great summer renting season!
A BEGINNER’S PLAYBOOK: SMART LOCKS, WI-FI & ACCESS CONTROL SOFTWARE BUY AND SELL SMARTER AND FASTER THAN EVER: AAOA PARTNERS WITH 100 REAL ESTATE AGENTS AND BROKERS GET TAX CREDITS FOR WINDOW REPLACEMENTS & EXTEND YOUR SAVINGS WITH 1 SIMPLE STEP
51
55
81 85 78 70 74 66 60
TO UPGRADE OR NOT TO UPGRADE: THAT IS THE QUESTION
HOT READS THIS SUMMER: TOP REAL ESTATE BOOKS TO FUEL YOUR GROWTH
HOW TO SPOT FAKE PAY STUBS AND VERIFY EMPLOYMENT
BENEFITS AND LIMITATIONS OF 1031-QUALIFIED DSTS
AAOA MEMBER REALIZES HIS CLYDESDALE DREAM
AN INSIDER’S GUIDE TO FINANCING YOUR MULTIFAMILY DEALS
TRUST NO ONE, CHECK THEM OUT: GROWING FRAUD AND THE IMPORTANCE OF BACKGROUND CHECKS
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DON'T LET YOUR NEW WINDOW INVESTMENT BE IN VAIN New windows can improve energy efficiency in your buildings, but if you don't address the areas around the window openings, you'll still have air leakage, letting conditioned air out and stifling your energy savings. One coat of FastFlash around the window rough openings before new windows are installed will create an airtight and watertight seal around your new windows, keeping the conditioned air on the inside.
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WHEN IT COMES TO TAXES, TIMING IS EVERYTHING!
Here is some insight into a common conversation that I have with clients about taxes.
Client: I would like to set up a 1031 EXCHANGE. Me: When do you plan to close the sale of the property? Client: I closed it last week. Me: I'm so sorry. It's too late to set up a 1031 Exchange. Client: But I haven't touched the funds yet. Me: I understand. However, because you did not sign a 1031 Exchange agreement before closing, you now have constructive receipt and the closer is waiting to release your funds to you per your instructions.
That happens on a semi-regular basis. Investors know that there are strategies to help them defer capital gains taxes, but they often don't know that timing is critical. And quite often, their real estate agents don't know this either. There are many capital gains tax strategies available. I teach 12 different strategies as part of my webinars. And there are likely more out there that I will learn about over time. The first thing to understand with all these strategies is that timing is a critical component because tax strategies usually deal with contracts and ownership.
What do I mean by that? 1031 Exchanges, structured installment sales, and tax deferred cash outs (to name a few) require a contract in advance of the close that allows an organization acting as an intermediary to receive the sales proceeds and allow for the tax deferral. Other strategies require a change of ownership because it is a trust or a business structure that has to sell the asset to get the tax mitigation. That means that the asset needs to be under new ownership so that the particular trust or specialized LLC structure can utilize the tax code that an investor cannot utilize in their own name or their LLC/S Corp name.
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THE BEST PLAN IS TO MEET WITH A CAPITAL GAINS TAX STRATEGIST IN ADVANCE OF A SALE.
HERE ARE THE TAX STRATEGIES YOU CAN USE AND WHEN YOU CAN USE THEM:
1
2
After Closing but within a 1031 Exchange's 45-day identification period (creating "mailbox money")
Before Closing
✓ 1031 Exchange ✓ Complex Spendthrift Trust ✓ Charitable Trust ✓ LLC with Charitable Intent ✓ Foundation ✓ Owner Carry (Traditional Installment Sale) ✓ Structured Installment Sale (sometimes with an annuity) ✓ Tax Deferred Cash Out
✓ Delaware Statutory Trust ✓ Tenant in Common
3
Rescuing a failing (not failed) Exchange
✓ Tax Deferred Cash Out ✓ Deferred Sales Trust ✓ Structured Installment Sale
4
After closing, but no 1031 Exchange involved
✓ Charitable Gift Annuity ✓ Qualified Opportunity Zones
And there are likely more options out there. The best plan is to meet with a capital gains tax strategist in advance of a sale. They can look at your case, evaluate the numbers, goals, and even your personality, to see which of the strategies make sense for the investor, if any. Sometimes, it's
better to take the gut punch, pay the taxes, and have absolute freedom to use the funds without long term commitments, restrictions, and costs that come with the strategies. Just know that the longer you wait, the more limited your tax deferral options become.
SCOTT VARNEY Capital Gains Tax Strategist S V Consultants, Inc (408) 569-0778
Scott Varney is a capital gains tax strategist as well as a financial services professional. He helps clients think through options to defer, reduce, or eliminate capital gains taxes upon the selling of a highly appreciated asset, in this case, apartment buildings. He has a background in real estate as a top 1% producer nationally in the realm of residential real estate. He enjoys being with people and loves the opportunity to help solve challenging issues.
Disclaimer : We do not give legal tax advice. The best way to get guidance on your specific legal issue is to contact an attorney.
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IT MAY NOT ALWAYS BE CLEAR IF A SPECIFIC SITUATION IS ACTUALLY CONSIDERED A DISABILITY UNDER THE LAW.
As a housing provider, it is essential to navigate the realm of reasonable accommodations and modifications while strictly adhering to fair housing laws. A crucial initial step in this process involves carefully identifying the unique needs of each resident. But it may not always be clear if a specific situation is actually considered a disability under the law. FAIR HOUSING AND DISABILITIES: OBESITY, SMOKING, AND HOARDING
DECODING THE DISABILITY DEBATE: IS OBESITY LEGALLY RECOGNIZED? Therefore, it is vital to delve into these situations to gain clarity and ensure compliance. In this article, we will explore three common scenarios that often necessitate clarification regarding the classification of a condition as a disability or not. By examining these cases, we aim to provide you with a deeper understanding of your obligations as a housing provider and help you navigate the intricacies of fair housing regulations. Let's consider the three following scenarios: Obesity, Smoking and Hoarding. Obesity, a global health concern affecting a significant portion of the population, has sparked a debate on whether it should be officially classified as a disability. This discussion carries substantial implications for fair housing practices.
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While obesity itself is not recognized as a protected class under fair housing laws, perceptions and interpretations of disability play a role. The definition of disability encompasses mental or physical impairments that substantially limit major life activities. Therefore, some individuals may perceive obesity as a disability based on its impact on mobility, daily functioning, or other factors. However, it is important to note that it is not within the purview of housing providers to determine whether someone is disabled or not. Making assumptions or treating individuals differently based on such perceptions can lead to discriminatory practices and potential violations of fair housing laws. In the context of housing accommodations, offering equal opportunities and access to all available units is crucial. Steering individuals with perceived disabilities, such as offering only ground-floor units to someone with difficulty climbing stairs due to obesity, may be considered illegal under fair housing regulations. Instead, it is essential to provide individuals with choices and allow them to decide which accommodations suit their needs and preferences. The classification of obesity as a disability remains a complex topic with implications for fair housing. While perceptions and interpretations may vary, it is crucial for housing providers to uphold fair housing laws by avoiding discriminatory practices and providing equal opportunities for all individuals, regardless of their perceived disabilities. UNRAVELING THE STATUS OF SMOKING: CAN HOUSING PROVIDERS BAN ITS USE? In recent years, the discussion around smoking and its classification as a disability has gained attention. While smoking-related illnesses can result in disabilities, smoking itself is not recognized as a disability under The Fair Housing Act. The law protects individuals seeking treatment for addiction to drugs and alcohol, as these are recognized as a disability, but this protection has not been extended to smokers yet. So, based on this, can housing providers ban its use?
SMOKING ITSELF IS NOT RECOGNIZED AS A DISABILITY UNDER THE FAIR HOUSING ACT.
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NAVIGATING THE COMPLEXITIES OF FAIR HOUSING AND HOARDING While our other two areas of concern, obesity and smoking, are not necessarily considered a disability in themselves, hoarding is recognized as a mental disability. It falls under the protected category of disability in The Fair Housing Act. Hoarding disorder is characterized by an individual who struggles to discard items due to sentimental reasons or a fear of letting go resulting in the accumulation of items regardless of value. It can also lead to the accumulation of pets which can result in an even greater concern. There are five levels of hoarding, but it is difficult to identify it in its early stages. Therefore, training is necessary to recognize hoarding in its early stages to assist better and manage the situation before it escalates. Having clear policies in place that allow for regular unit inspections greatly aids in this. For example, federally funded properties have government-provided leases that include language requiring units to be decent, safe, and sanitary. Additionally, specific notices can be provided in case of a hoarding situation. Private market properties can follow this direction while creating their own policies. The answer is a clear yes. Properties have the right to establish and enforce no-smoking policies, including common areas, units, or the entire property, even in federally funded properties. In fact, public housing authorities have been instructed by HUD to restrict smoking altogether. That being said, the provision of smoking areas is an option and may aid in resident compliance. Private market properties have the discretion to decide whether to offer smoking areas, while for federally funded properties, HUD recommends providing smoking areas but does not mandate it.
PROPERTIES HAVE THE RIGHT TO ESTABLISH AND ENFORCE NO-SMOKING POLICIES.
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HOARDING IS RECOGNIZED AS A MENTAL DISABILITY.
So, what should a housing provider do if an inspection results in identifying a hoarding situation? Since hoarding is considered a disability, an accommodation would need to be provided while you work together with the resident to achieve a resolution. Documentation plays a critical role in this process. Property managers should inform the resident that they are aware of the situation and offer assistance. Assistance can range from providing a list of organizations that can help or by directly contacting these organizations on behalf of the tenant. Documentation will also aid if you need to proceed with an eviction to show that you operated in good faith and attempted all avenues of resolution.
FINAL THOUGHTS Throughout this article, we have delved into three common scenarios that require clarification on the classification of a condition as a disability or not. As a housing provider, it is crucial to approach reasonable accommodations and modifications with a strong commitment to fair housing laws when a disability has been identified. To avoid potential fair housing complaints, it is necessary to thoroughly examine and understand these situations. By gaining a deeper understanding of your obligations and navigating the intricacies of fair housing regulations, you can ensure fair housing compliance.
KATHELENE WILLIAMS Attorney and President The Fair Housing Institute
Kathi Williams is one of the founders of Fair Housing Institute. FHI is the accomplished vision of Kathi who views its educational courses as the best method housing providers can use to accomplish compliance and avoid litigation. Kathi is also a partner in the Law Firm of Williams Edelstein Tucker, P.C. providing defense and preventative representation for the housing industry in all civil rights matters. During the many decades Kathi has been advising her housing provider clients, she developed a unique understanding of the most effective methods of communicating fair housing best practices through training.
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SPONSORED BY PROSOCO
As a landlord, you understand the importance of maintaining the structural integrity and aesthetic appeal of your properties. One of the most critical components of property maintenance is the re-stabilization of brick and masonry walls. Over time, walls may develop issues, such as cracks or deterioration, posing potentially hazardous conditions for you and your tenants. BRICK WALL RE-STABILIZATION FOR LANDLORDS: A SUPERIOR APPROACH
Recladding a masonry façade is one method used by many masonry restoration contractors, but it can be invasive as well as cost prohibitive. We have good news. There’s a better option to stabilize brick walls – one that’s economical, less invasive and easier to install than alternatives. It's called helical beaming , and it involves reinforcing two separate lengths of mortar beds with two PROSOCO Stitch-Tie Bars each and embedding them in a special grout before
retooling the mortar. This reinforces and adds strength to areas of brick facades that have lost their structural integrity.
THERE’S A BETTER OPTION TO STABILIZE BRICK WALLS – ONE THAT’S ECONOMICAL
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THE BENEFITS OF HELICAL BEAMING Long-lasting results: PROSOCO’s re-stabilization method, called helical beaming, ensures a durable and sustainable solution, reducing the need for frequent repairs. This translates into long-term savings for landlords and improved tenant satisfaction.
1
Minimized disruption: Minimizing disruption to your tenants is a top priority. PROSOCO’s approach involves efficient processes that are less intrusive, allowing your tenants to continue their daily activities with minimal inconvenience.
2
Cost-effective: Investing in a re-stabilization solution offers cost savings – both up front and in the long run. Helical beaming has been demonstrated to cost less than half of traditional methods, such as replacing steel lintels and brick. By addressing underlying issues effectively, you can avoid costly and repetitive repairs, optimizing your maintenance budget.
3
Enhanced property value: Well-maintained properties attract high-quality tenants and yield better rental returns. By choosing the helical beaming re-stabilization approach, you can protect and enhance the value of your investment.
4
Nationwide field support: Experienced technical representatives from PROSOCO come to you to train your contractor’s crew.
5
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CHOOSING THE RIGHT SOLUTION IS CRUCIAL.
WHY CHOOSE PROSOCO: Proven track record: We have a solid reputation 1. in the industry, backed by numerous successful projects and satisfied clients. Our expertise in re-stabilizing brick walls for landlords ensures reliable results.
2.
3.
Tailored solutions: We understand that each property has unique requirements. Our approach involves a thorough assessment of your specific needs, enabling us to develop customized solutions that meet your expectations.
Commitment to customer satisfaction : As a landlord, your satisfaction is our top priority. We strive to exceed your expectations by delivering exceptional service, maintaining open communication, and addressing any concerns promptly.
When it comes to re-stabilizing brick walls for your rental properties, choosing the right solution is crucial. Our superior approach offers a comprehensive range of benefits for landlords, including long-lasting results, minimized disruption, cost-effectiveness, enhanced property value, and access to professional expertise. With our proven track record, tailored solutions, cutting-edge technology, and commitment to customer satisfaction, we are the partner you can rely on to ensure the structural integrity and longevity of your brick walls.
Contact us today to discuss how our innovative re-stabilization solution can stabilize your properties for years to come while minimizing disruption to your tenants. We’re here Monday through Friday, 8am-5pm Central Time, at 800-255-4255.
PAGE 15
FEATURED AAOA MEMBER
$4,195,000
$10,000,000
COCOA, FL | MOBILE HOME PARK 92 units, 92 tenants Public Water & Sewer, Billed Back Owner Financing: 3% Interest Rate, 50% LTV, 5 Year Term
VENICE, CA | TRIPLEX 3 bedrooms, 2.5 bathrooms each Not subject to LA RSO or AB 1482 5.6% Cap Rate, 13.8 GRM
$425,000
$1,525,000
CHICAGO, IL | 12 UNITS (6) 2/1, (6) 1/1 Effective annual income = $157,840 New boiler, windows, back porch system
NORWICH, CT | 5 UNITS (4) 1/1, (1) 2/1 Class C, value-add with under market rents 10% Proforma Cap
$850,000
$234,000
MORGANTOWN, WV | 12 UNITS 4 properties, (inc. 1 w/addt’l commercial) All within walking or 5 min. drive to WVU
HOBART, IN | DUPLEX Basement can be converted to a 3rd unit Multiple renovations
PAGE 16 Ready to list your property with AAOA?
CONTACT AN AAOA REAL ESTATE AGENT
PROPERTIES FOR SALE
$2,900,000
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NEW HAVEN, CT | DUPLEX Currently rented for $4,250/mo Riverfront with private boat launch 5.84% cap rate
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$323,900
NEW LIFE GARDENS, MN | 27 UNITS Class A finishes, 27 units, 2 story 8-studios, 15-1 bed, 4-2 bed Completed Fall 2023
OCEAN VIEW, DE | 55+ CONDO 1-year+ leases required on rentals 1292 sq. ft. 2 bedrooms, 2 bathrooms Brand new construction
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$350,000 $8,295,000
NAMPA, ID TOWNHOME CULVER CITY, CA | 13 UNITS In-place Cap 4.2%, Pro Forma Cap 5.43% Built in 2017, not subject to LA RSO/AB 1482 1,114 sq. ft., fenced backyard 3 bedrooms, 2 bathrooms
MILFORD, CT | AIRBNB AirBNB Superhost – sold fully furnished 1805 Sq. Ft, 4 bedrooms, 2.5 bathrooms
Interested in one of these investment opportunies?
CONTACT US
PAGE 17
Artificial intelligence (AI) tools such as ChatGPT, Bard and MidJourney have been making headlines across the globe over the last few months. Almost every industry is trying to figure out how it can save them time while making them more efficient. HOW TECHNOLOGY AND AI ARE REVOLUTIONIZING LANDLORD INSURANCE
Property insurance is one sector of the insurance industry that can benefit tremendously by incorporating AI into how they conduct their business. The industry at large hasn’t changed
much in the last 20 years but new emerging technologies, known as InsurTech, are pushing forward a much needed revolution, a more streamlined way of issuing insurance policies.
DOES AN UPGRADED PROPERTY PAY LESS INSURANCE?
Imagine that you invest in a single-family rental that is in great condition. All the wiring, roof, and other components were replaced in the last 5 years. Right next to it, you have a similar single-family dwelling, but no major upgrades have been made in the last 15 years. Surprisingly, the two properties have the exact same premium rates, a situation that is not uncommon. Traditional insurance pricing models often rely on generalized assumptions resulting in premiums
that may not accurately reflect the true risk associated with a specific rental property. Insurance premiums have usually been calculated based on statistical data and actuarial analysis, and by looking at similar properties in the area. This has led to inaccurate risk assumptions where properties that upheld a higher standard did not reap the benefits of their investments when it came to their insurance premiums.
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TECHNOLOGY DEVELOPMENTS DRIVE MORE ACCURATE UNDERWRITING One of the key advantages of utilizing new technologies in insurance is its ability to personalize policy pricing for rental properties. With the rising inflation and weather-related claims, innovative insurance companies are now applying data and AI tools to customize insurance limits and deductibles. This practice helps to provide adequate limits and right-fit deductibles that benefit those risks that are less prone to hail losses, for example. PERSONALIZED POLICY PRICING
PREDICTIVE RATES
AI also empowers underwriters with predictive analytics capabilities. By applying machine learning algorithms, AI systems analyze data to make predictions, such as risk assessment about future rental property performance.
MORE DATA ACCESS FOR ACCURACY
By automating data analysis, these emerging technologies can process large volumes of data from various sources, such as property listing sites like Zillow, map services like Google Maps, historical rental data, and other market trend reports.
VIRTUAL INSPECTIONS FOR FASTER QUOTES
Virtual inspections are another technological advancement that helps speed up the underwriting process. Instead of having to wait for manual inspections, customers can now quickly complete this process by using their phones and uploading pictures into inspection apps. Drones and satellites can also be used for images of the roof and the property exterior.
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THE EXPECTATION NOWADAYS IS TO GET A QUOTE RIGHT AWAY.
THE NEED FOR SPEED
Lengthy insurance processes can be a nuisance for anyone who is in the process of obtaining an insurance policy or reviewing their options before buying a rental property. In a world where instant gratification is at the forefront of every consumer journey, the insurance industry must adapt to the need for speed. With AI, advanced algorithms can swiftly analyze vast amounts of data, including customer information, claims history, and risk assessment, enabling insurers to make quicker and more accurate policy decisions. The expectation nowadays is to get a quote right away, and InsurTech technology is moving this in the right direction. Additionally, AI-powered chatbots and virtual assistants can handle customer inquiries and
provide instant feedback, reducing the need for human intervention and expediting the overall policy issuance process. AI enables insurers to offer 24/7 support, and customers can receive assistance at any time, regardless of geographical location or business hours. Moreover, AI-driven algorithms can analyze vast amounts of customer data to identify patterns, anticipate customer needs, and personalize interactions, leading to more tailored and satisfactory customer experiences. By automating routine inquiries and providing efficient self-service options, AI frees up human customer support agents to focus on more complex and high-value tasks, further improving overall service quality.
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INSURTECH EMPOWERS CUSTOMERS TO TAKE CONTROL OF A PRODUCT THAT HAS THE REPUTATION OF BEING COMPLICATED.
INSURTECH PUTS THE LANDLORD IN THE DRIVER'S SEAT
InsurTech is first and foremost all about making insurance more accessible to landlords by streamlining the entire process, making it more efficient and timesaving. Landlords can easily research and compare different insurance policies online, eliminating the need for lengthy paperwork and multiple phone calls. By enabling consumers to go online and get a quote, InsurTech empowers customers to take control of a product that has the reputation of being complicated and inaccessible.
Additionally, InsurTech platforms often utilize advanced data analytics and algorithms, allowing landlords to receive accurate quotes tailored to their specific property and risk factors. This ensures that landlords can find the most cost- effective insurance options, maximizing their coverage while minimizing expenses. Overall, InsurTech simplifies and enhances the insurance experience for landlords, providing them with a seamless and effective means of protecting their properties.
ITAI BEN-ZAKEN CEO & Co-Founder Honeycomb Insurance
Itai Ben-Zaken is the Co-founder and CEO of Honeycomb, an MGA providing simple, fair, and affordable multi-family property insurance through its end-to-end digital platform. Before founding Honeycomb, Itai was the Co-founder and CEO of Comprendi, an award winning digital marketing startup. Prior to that, Itai managed a $100M Digital Insurance business unit at NASDAQ:QNST, which included Insurance.com and CarInsurance.com. Itai holds a B.Sc in Computer Engineering from the Hebrew University of Jerusalem and an MBA from the Wharton School of the University of Pennsylvania. Click here to get an instant rental property insurance quote from Honeycomb Insurance.
PAGE 21
COSTAR RENTAL MARKET UPDATE: WHERE IS RENT GROWTH DECELERATING THE MOST?
By Jay Lybik, National Director of Multifamily Analytics at CoStar
• The multifamily trend of supply outpacing demand continued for the sixth quarter in a row. It may continue for the remainder of this year. • Net absorption rebounded into positive territory after turning negative at the end of 2022, with 42,000 units absorbed. • The second quarter is on pace to absorb 100,000 units, but new units delivered are projected to hit 145,000 units. • Given demand’s inability to match completions, rent growth has decelerated from 3.8% at the end of 2022 to 1.2% at the end of June.
Absorption Stuck in First Gear
300,000 275.000 250,000 225.000 200.000 175.000 150,000 125.000 100,000
75,000 50,000 25,000 0 -25,000 2019 Q1 2019 Q2 2019 Q3 2019 Q4 2020 Q1 2020 Q2 2020 Q3 2020 Q4 2021 Q1 2021 Q2 2021 Q3 2021 Q4 2022 Q1 2022 Q2 2022 Q3 2022 Q4 2023Q1 QTD 6/26/23 Period Source: CoStar, June 2023
PAGE 22
INDIANAPOLIS, CINCINNATI, AND COLUMBUS WERE THE RENT GROWTH LEADERS.
MIDWEST AND NORTHEAST MARKETS FARED THE BEST, SUB BELT MARKETS SLOWED DOWN
The year-over-year rent growth is down only marginally in the markets in the last 12 months. Indianapolis, Cincinnati, and Columbus were the rent growth leaders, with rent growth ranging from 4.3% to 5.4% at the end of May. Sun Belt markets on the other hand have seen
significant slowing in rent growth over the past 12 months. Las Vegas and Phoenix have gone from rent growth rates of 19% and 17% respectively to -2.6% and -2.7%. The slowing of rent growth will continue for the rest of 2023 as the risk of recession hangs over the economy and many markets are experiencing over-supply conditions.
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WHY IS RENT GROWTH DECELERATING AND WHAT’S NEXT? The supply/demand imbalance experienced since the end of 2021 has pushed the national vacancy rate up over 200 basis points from an all-time low of 4.7% in the third quarter of 2021 to 6.8% today.
roommate, while economic uncertainty continues to hold back household formation, which is dampening middle market demand. The second quarter has shown improved demand in the neighborhood of 100,000 units but will once again not match new units coming online. Thus, CoStar's current forecast pegs the national vacancy rate to finish this year in the mid 7% range, which would be 100 basis points higher than pre- pandemic levels.
Absorption in the first quarter was well below the five-year pre-pandemic average of 82,000, as higher costs due to elevated inflation weighed on demand. Moreover, significant rent increases in 2021 and 2022 forced some renter households to find alternative housing situations, such as returning home to their parents or finding a
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THE MOST NEW SUPPLY TO HIT THE MARKET SINCE THE MID-1980S.
When demand in the multifamily market spiked in the first year of the pandemic, developers accelerated plans for new projects. Now, two years later, many of those developments are set to deliver this year. The national forecast projects almost 520,000 new units to be delivered in 2023, the most new supply to hit the market since the mid-1980s.
Fifteen markets are projected to hit new record deliveries in 2023 and Sun Belt locations make up 10 of those markets. These record deliveries are arriving at the exact same time demand remains weak, putting several of these 15 markets at significant risk of worsening fundamentals by the end of the year.
In the end, 17 major multifamily markets are projected to end the year in negative rent growth territory and 80% of the above markets won’t meet their pre-pandemic five-year rent growth average. Midwest and Northeast markets with minimal new construction are forecasted to witness the best rent growth by the end of 2023 which is quite a surprise for an industry that typically pegs these regions as the laggards.
PAGE 25
Get Smart About Your Access Control. remotelock.com
PAGE 26
As the demand for housing intensifies and urban spaces become more constrained, innovative housing solutions are gaining traction. Accessory Dwelling Units (ADUs) have emerged as a practical and sustainable approach to address housing challenges while making the most of available space to create small, affordable housing opportunities. But with the inclusion of ADUs on a property comes the challenge of fairly recovering utility costs. Ratio Utility Billing is the answer! UNLOCKING EFFICIENCY: THE ROLE OF RATIO UTILITY BILLING FOR ACCESSORY DWELLING UNITS
WHAT ARE ACCESSORY DWELLING UNITS (ADUS)?
First things first – let's talk about ADUs. You might be more familiar with them under other names like "granny flats," "in-law suites," or "backyard cottages." Essentially, ADUs are secondary living spaces attached to or located on the same property as a primary residence. They can take various forms, including basement apartments, garage conversions, or detached cottages. ADUs have been gaining popularity for several reasons. They provide a practical solution for In recent years, housing affordability has become a pressing issue in many cities and neighborhoods. The high demand for housing, coupled with limited space and rising property prices, has made it challenging for people to find suitable homes THE INCREASING NEED FOR ADUS
families seeking additional space for elderly parents, adult children, or guests. Furthermore, they open up opportunities for homeowners to earn extra income on their property.
ADUS HAVE BEEN GAINING POPULARITY FOR SEVERAL REASONS.
within their budgets. ADUs make use of available space on a property, homeowners can expand their living options or provide affordable rental housing to others.
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THE UTILITY COST CONUNDRUM
Now, let's talk about utility costs. It's no secret that utility bills can take a significant chunk out of a homeowner's budget. When an ADU is added to a property, the utility consumption naturally increases. This brings up a vital question: Who should be responsible for paying those additional utility costs? In some cases, homeowners might choose to include the utility costs for the ADU in the rental price. However, there's a more equitable and efficient way to handle this: Ratio Utility Billing.
UNDERSTANDING RATIO UTILITY BILLING (RUBS)
Ratio Utility Billing fairly distributes utility costs among multiple units on a property based on their usage. Instead of just passing on the entire utility bill to the ADU's Resident or incorporating the costs into the rent, RUBS considers the proportionate use of utilities by each unit, without the expense of submetering equipment and installation. Here's how it works: 1. The utility bill is divided between the primary residence and the ADU based on an algorithm. Typically, this is done by calculating the square footage and number of occupants in each unit. Each household pays only for the utilities they consume. 2. Utility recovery platforms like Livable do the heavy lifting on the calculations - all you need to do is provide basic information and let the system do the rest. 3. Livable also provides full transparency into utility use, giving Residents the opportunity to lower their bills through reducing consumption. Important note: Check your local laws. You may need to use submeters for some utilities depending on where you live. Even if you do need or choose to use submeters, a professional payment platform can help you manage payments and stay in compliance.
HOMEOWNERS MIGHT CHOOSE TO INCLUDE THE UTILITY COSTS FOR THE ADU IN THE RENTAL PRICE.
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BENEFITS OF RATIO UTILITY BILLING FOR ADUS
1. Fair, Transparent Allocation of Costs: RUBS ensures that the utility costs are distributed fairly based on consumption.
2. Encouragement of Conservation: When Residents are responsible for their utility bills, they are more mindful of their consumption. What’s good for the planet is good for your wallet!
3. Financial Sustainability: For homeowners, ADUs can provide an additional source of income. But you can’t raise the rent every time the city raises water prices. Implementing RUBS lets you maintain a healthy bottom line as utility costs, especially water, continue to rise.
4. Ease of Implementation: RUBS can be easily implemented by property owners and property managers. No separate meters or submeters are needed, making it a cost-effective solution.
ADU’s can address housing challenges, provide additional income, and promote multi-generational living. Ensuring a fair and efficient utility cost recovery mechanism is essential to their success.
As the popularity of ADUs continues to rise, integrating RUBS into these housing setups can unlock their full potential and contribute positively to housing diversity and affordability.
“Livable is here to help,” says Livable CEO Dan Sharabi. “We want to help Housing Providers get the most from their investments and help encourage the conservation of valuable natural resources at the same time.”
So, if you’re a homeowner contemplating an ADU addition, keep the magic of Ratio Utility Billing in mind. It's not just about fair billing – it's about building a better, more inclusive future for everyone!
DANIEL SHARABI CEO & Co-founder Livable
Daniel Sharabi is the CEO & Co-founder of Livable, a utility management company with software solutions designed to save money, as well as the environment. Daniel’s immersive experience working within a multitude of sectors in Silicon Valley offers a homegrown advantage in his vision of leveraging technology to provide benefits for all: the property owner, property manager, the tenants, and our environment. To find out what Livable can do for your property check out livable.com or call 877-789-6027.
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POTENTIAL BENEFITS OF EXCHANGING INTO DELAWARE STATUTORY TRUST PROPERTIES
6
Delaware Statutory Trusts (DSTs) continue to grow in popularity, especially among aging baby boomers who are tired of managing their own properties and are looking for a way to transition into a passive income stream.
DST investments not only provide investors with the potential for passive income, but also the following six benefits as well. However, it is important to note that these potential benefits should always be carefully weighed with the potential risks that are possible with DST investments. As with all real estate investments, investors should consult their tax attorney and/or Certified Public Account before investing in DSTs.
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MOVE FROM AN ACTIVE TO A PASSIVE ROLE OF REAL ESTATE OWNERSHIP.
Tax deferral using the 1031 exchange
Eliminating the day-to-day headaches of property management Because many DST investors are at or near retirement, they are simply tired of the hassles that real estate ownership and management often bring. They are tired of the tenants, toilets and trash and want to move away from actively managing their properties. Many real estate investors have wanted to sell their apartments, rentals and commercial properties for years but haven’t been able to find a property to exchange into. They just can’t stomach the tax bill due after adding up the federal capital gains tax, state capital gains tax, depreciation recapture tax and the Medicare surtax. The DST 1031 property solution provides investors an ability to move from an active to a passive role of real estate ownership on a tax-deferred basis. The DST 1031 property provides a passive ownership structure, allowing them to enjoy retirement, grandkids, travel and leisure, as well as to focus on other things that they are more passionate about instead of property management headaches.
Benefit
1
Benefit
2
Increased cash flow potential**
Many investors are receiving a lower amount of cash flow on their current properties than they should be due to their properties’ under-market rents, multiple vacancies and/or raw or vacant land that is sitting idle. DST 1031 exchange properties provide an opportunity for investors to potentially increase the cash flow** on their real estate holdings via a tax deferred 1031 exchange.
Benefit
3
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SECURE NON-RECOURSE FINANCING AT SOME OF THE BEST TERMS.
Portfolio diversification* by geography and property types Oftentimes, 1031 investors are selling a property that comprises a substantial amount of their net worth because they want to reduce their potential risk. Rather than buying one property, such as another apartment building or one NNN building, they decide that investing into a diversified portfolio of DST 1031 properties with multiple locations, asset classes (property types) and tenants is a better fit for their goals and objectives. This is similar to how investors tend to invest retirement funds in mutual funds and Exchange Traded Funds (ETFs) as opposed to placing their entire retirement savings into the stock of one particular company. However, it is important to note that there are no assurances that diversification will produce profits or guarantee against loss. Long-term, non-recourse financing locked and in place to satisfy debt replacement requirements of the 1031 exchange A 1031 exchange requires you to take on replacement property with “equal or greater debt” to what you had in the relinquished property (the property you are selling). In today’s lending environment, it is often hard for investors to obtain non-recourse financing at an acceptable interest rate and terms. Since the DST 1031 properties’ sponsors typically have strong lending relationships, they are able to secure non-recourse financing at some of the best terms available in the marketplace. The DST 1031 investors are the direct recipient of financing terms that they would otherwise often not be able to obtain on their own.
Benefit
4
Benefit
5
Access to institutional-grade real estate
DST 1031 properties provide access to large, institutional-grade real estate that is often otherwise outside of an individual investor’s price point. For example, with the typical minimum investment of $100,000, investors are still able to purchase an ownership interest in large $20 million-plus apartment communities, $5 million-plus pharmacies or $15 million grocery stores. This allows investors access to a level of real estate that they would not have been able to exchange into before. That being said, we also have had many clients with very large 1031 exchanges opt to invest in DST 1031 properties because they did not want to place “all their eggs into one basket” by purchasing one single, large investment property.
Benefit
6
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CONCLUSION Whether or not you are currently thinking about selling a piece of property, every real estate investor should familiarize themselves with the benefits and details of a DST 1031 exchange. It could save you a lot of money when you are ready to make a move.
For more information about Kay Properties or to review a current list of 1031 Exchange eligible properties please visit kpi1031. com or scan the QR code below to receive your FREE 1031 Exchange toolkit.
DWIGHT KAY Founder and CEO Kay Properties & Investments LLC (855) 899-4597
Dwight Kay is the Founder and CEO of Kay Properties and Investments, one of the most experienced and knowledgeable investment firms in the country specializing in Delaware Statutory Trust (DST) and private equity real estate investments. Mr. Kay established Kay Properties with the emphasis on providing real estate investment options to high- net-worth clients looking for passive real estate ownership. Since its founding, Kay Properties has participated in more than $30 billion of DST 1031 investments.
Disclaimer : This material is not to be considered tax or legal advice. Please speak with your own CPA and attorney for all tax and legal advice prior to considering an investment. All real estate and DST properties contain risk. *Diversification does not guarantee returns and does not protect against loss. ** Past performance does not guarantee or indicate the likelihood of future results. Diversification does not guarantee profits or protect against losses. All real estate investments provide no guarantees for cash flow, distributions or appreciation as well as could result in a full loss of invested principal. Please read the entire Private Placement Memorandum (PPM) prior to making an investment. This case study may not be representative of the outcome of past or future offerings. Please speak with your attorney and CPA before considering an investment. Securities offered through FNEX Capital, member FINRA, SIPC.
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Is including water with rent sinking your bottom line?
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PAGE 34
In recent years, the use of financial technology, or fintech , has made a significant impact across various industries in well-established sectors, such as banking and insurance. It has created new possibilities and opportunities for consumers, investors, and businesses alike. Fintech has especially influenced property management by improving efficiency, reducing costs, and enhancing the overall experience. Digital platforms make transactions and administrative tasks easier while comprehensive software options automate complex processes and support better decision-making. These tools empower rental property owners to streamline operations, save money, and provide excellent services. By leveraging financial technologies, we can revolutionize how we manage our investment properties. THE ROLE OF FINTECH IN PROPERTY MANAGEMENT: ADVANCEMENTS AND OPPORTUNITIES
THE CURRENT LANDSCAPE OF PROPERTY MANAGEMENT
Traditional property management methods have long relied on manual processes and in- person interactions for tasks like rent collection and maintenance requests and paper-based transactions such as written checks and printed reports, coupled with basic online tools like spreadsheets. However, these traditional, manual tasks are time-consuming, labor-intensive, and
require significant manpower. Moreover, paper-based systems slow communication, complicate maintenance request handling, and pose storage and retrieval challenges. They are also vulnerable to damage or loss and lack the analytical capabilities and real- time insights their digital counterparts provide.
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THE ACCOUNTING FUNCTION ALLOWS LANDLORDS TO SEAMLESSLY TRACK RENT PAYMENTS.
INTRODUCTION TO FINTECH IN PROPERTY MANAGEMENT
Technological innovations from financial services firms are simplifying regulatory challenges, digitizing documents, and paving the way for new financing opportunities. Many of these solutions are cloud-based platforms that include accounting and tenant ledger
capabilities, maintenance request systems, and dedicated communication channels. For instance, the accounting function allows landlords to seamlessly track rent payments, expenses, and other financial transactions. The tenant ledger feature provides easy access to tenant details and rent payment history.
BENEFITS OF FINTECH IN PROPERTY MANAGEMENT
Fintech applications are extensions of a landlord's capabilities, enhancing interactions and amplifying their strategic foresight.
STREAMLINING RENT COLLECTION Landlords can now harness the power of digital payment platforms, effectively eliminating check- writing and “snail mail” from the equation. This saves time and money and circumvents risks associated with lost or stolen checks. Additional features of these solutions include automated late fee calculations and payment reminders, and promoting healthy cash flow. EFFECTIVE FINANCIAL TRACKING AND REPORTING Digital tools can automate expense tracking and financial reporting by monitoring expenses, such as maintenance and repairs, property taxes, and insurance premiums. Leveraging fintech, rental property owners can effortlessly create comprehensive financial reports, equipping themselves with the necessary insights for informed property decisions and simplified tax preparation.
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ENHANCED TENANT EXPERIENCE The convenience of online payments helps tenants meet their payment deadlines, thereby avoiding late fees and potentially enhancing their credit scores. These digital tools facilitate real-time updates on lease terms, renewal reminders, and maintenance requests, enhancing the communication between property owners and tenants. IMPROVED DECISION-MAKING Investors can use data collected by digital tools to identify trends in rent payments, maintenance requests, and other key metrics. This helps them make data-backed decisions about their properties, such as when to renovate or upgrade a unit or when to increase rent prices. In addition, the tools can help property managers identify potential risks and opportunities, allowing them to make proactive decisions to improve their bottom line.
Potential challenges and solutions
Challenge
Solution
One might encounter resistance due to the comfort of established practices, especially among tenants or owners who use more traditional methods. Tenants and landlords may express concern about the security of sensitive digital information. Another perceived obstacle is the initial investment necessary to incorporate fintech solutions.
Hands-on demonstrations or trial periods to demonstrate fintech’s benefits to them should overcome this resistance.
One must choose platforms that oer robust encryption, frequent security updates, and strict adherence to data privacy regulations, ensuring the integrity and safety of users' data. It’s crucial to perceive financial technology integration as a long-term investment. While there will be initial costs and setup time, operational e ciencies and financial gains often compensate over time. Moreover, the fintech market, driven by growth and competition, oers a variety of cost-eective or even free solutions that cater to diverse needs and budgets, providing feasible options for all landlords.
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