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.
5% CASH BACK AAOA BUSINESS MASTERCARD
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FALL 2024
TRUMP AND THE FUTURE OF 1031 EXCHANGES
2025 REAL ESTATE PREDICTIONS
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PAGE 49 TINY HOMES, BIG PROFITS
-HOLIDAY- CONSERVATION TIPS TO KEEP UTILITY COSTS LOW
PAGE 35 2025 UNLOCKED: GAME CHANGING RENTAL TRENDS
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PAGE 31 NAVIGATING COMMERCIAL BANK LOANS FOR APARTMENT BUILDINGS
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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 Allen Artcliff-Cronrod Ashley Wilson Bob Knakal Bradley Barth, Esq. Daniel Sharabi Dena Palmer Dr. Michael Threatt Frank Jachetta Gary Gregory Gita Faust Grant Drzyzga Jason Kogok Joel Jones Kathelene Williams Leah Maher Nancy Abrams Patrick Marin-Finn Rhianna Campbell Richard D. Gann, JD Robert Friedman Robyn Wonnell Shari Huntington Stephanie Shanfeld Tara Samuels Thom Damstra Tom Wheelwright, CPA
CONTENTS
05 08 15 18
AAOA INTRODUCES THE AAOA WORLD ELITE BUSINESS MASTERCARD®
3 FACTORS CHANGING THE MULTI- FAMILY RENTAL LANDSCAPE: SUPPLY, DEMOGRAPHICS, AND TECHNOLOGY
PLANNING TODAY FOR 2025 REAL ESTATE INCOME TAX CHANGES
AVOIDING LOW-INCOME DISCRIMINATION AND STEERING IN HOUSING: A PROFESSIONAL GUIDE
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Welcome! Where did the year go? It seems that we just welcomed in 2024 and now we are saying good-bye to it with our fourth-quarter edition of RENT. Have you heard about the new AAOA World Elite Business Mastercard specifically designed for apartment owners? You’ll find all of the details inside 5% cash back on insurance, repairs, maintenance and AAOA purchases. In this issue, we also take a look at predictions for 2025 as well as factors changing the business of multifamily investments. On the business side, we look at how to protect rental income when leasing to less traditional tenants, such as freelancers, as well as meeting deadlines for the Corporate Transparency Act and how to navigate commercial bank loans for apartment buildings and the upcoming real estate income tax changes. You will learn about the popularity of tiny homes and how to profit by renting them out. A timely article shares holiday conservation tips to keep utility costs low and another discusses how to avoid low-income discrimination and steering in housing. As always, we offer you a look at Celebrities on the Move. This month we feature such disparate buyers and sellers as Snoop Dogg, Lizzo, David and Victoria Beckham, Andy Cohen, Jean Smart and Nicholas Cage. We at AAOA wish you the very happiest of holiday seasons and a prosperous new year. Happy reading!
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TOP 3 WAYS TO PROTECT RENTAL INCOME WHEN RENTING TO FREELANCERS, RECENT GRADUATES, AND MORE
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TRUMP AND THE FUTURE OF 1031 EXCHANGES
35 31 42 49 56 60 63 68
NAVIGATING COMMERCIAL BANK LOANS FOR APARTMENT BUILDINGS
2025 UNLOCKED: GAME-CHANGING TRENDS FOR PROPERTY MANAGERS AND INVESTORS
2025 REAL ESTATE PREDICTIONS FROM 14 INDUSTRY LEADERS
TINY HOMES, BIG PROFITS
THE ULTIMATE TOP 5 MULTIFAMILY MARKETS FOR 2025
CELEBRITIES ON THE MOVE
16 WAYS TO AVOID PROBATE
5 HOLIDAY CONSERVATION TIPS FOR PROPERTY MANAGERS: SAVING ENERGY AND REDUCING UTILITY COSTS
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MEETING THE CORPORATE TRANSPARENCY ACT DEADLINE: HOW TO AVOID FINES
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The American Apartment Owners Association has announced the debut of its own dedicated credit card, the AAOA World Elite Business Mastercard®, created to assist and reward its members with a unique menu of features and benefits. It is the only card tailored for a landlord’s business financial needs. AAOA INTRODUCES THE AAOA WORLD ELITE BUSINESS MASTERCARD® Earn 5% cash back on insurance, repairs, maintenance, and all AAOA purchases*
Although the new card is designed for businesses, such as independent contractors who file a 1099-NEC/Misc or any owner of a business entity, an individual can apply by selecting “Sole Proprietor.” AAOA members will enjoy a faster approval process, whether they are a paid member or not. Applying for the card will not affect your credit score. “The AAOA World Elite Business Mastercard® is a game- changer for apartment owners, offering unparalleled benefits that directly address the unique needs of our profession. This innovative card provides real estate businesses with substantial cash-back rewards and a unique management platform to make managing your finances simple,” commented Jeff Cronrod, AAOA Chief Executive Officer.
• Up to 2.1% unlimited cash back on all purchases with no category requirements! • 5% on insurance, repairs, maintenance and on AAOA purchases, credited back to your AAOA account! • $500 bonus (worth three years of AAOA Pro Plus Membership) when $30K is charged to your card within the first three months! Why did AAOA choose this particular card? Because it comes with the most generous cashback offer we’ve seen:
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ADDITIONAL BENEFITS OF THE AAOA MASTERCARD® In addition to its extraordinary monetary awards, the AAOA Mastercard® offers the following special features:
No annual fees Unlimited employee cards with no additional fees QuickBooks® integration
Control of user permissions and management of spend limits for entire team Business expense reports generated for tax savings
Dedicated vendor negotiation specialist No registered business entity required
For further information and to apply for the AAOA World Elite Business Mastercard®, visit AAOAcard.com or call the support center at (848) 420-8405. *Note: Please review the Cardholder Agreement for full details about the terms and conditions of the rewards and benefits.
NANCY ABRAMS Assistant Editor American Apartment Owners Association (866) 579-2262 nancy@aaoa.com
Nancy Abrams has enjoyed a long career in real estate marketing throughout Southern California and Las Vegas. She formerly represented 19 Merrill Lynch Realty branch offices, property managers The Roberts Companies, new home developers, including master planned communities Peccole Ranch and The Valencia Company and shopping centers for Sandy Sigel of NewMark Merrill.
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FACTORS CHANGING THE MULTI- FAMILY RENTAL LANDSCAPE: SUPPLY, DEMOGRAPHICS, AND TECHNOLOGY
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The multifamily rental market is evolving with changing tenant demographics, technological advancements, and changing work dynamics, not to mention that a ton of new construction is about to wrap up. This shift presents new opportunities for property managers to leverage the demographic data and today’s innovative technologies to enhance their operations, increase foot traffic, and improve tenant retention. THE IMPACT OF NEW APARTMENT SUPPLY ON THE RENTAL MARKET A record number of multifamily units are set to hit the market this year. In 2022, building permits were issued for 707,000 multifamily units, the highest number since 1985. Projects initiated two years ago are now reaching completion. As a result, 2023 saw the most apartments enter the market since 1987. And 2024 is on track to surpass those numbers. Several factors are driving this increase in The surge in new apartment supply is already having a noticeable impact on rent prices and vacancy rates, which demonstrates the economic relationship between supply and prices. For investors and developers, these trends highlight the importance of carefully considering local market conditions.
A RECORD NUMBER OF MULTIFAMILY UNITS ARE SET TO HIT THE MARKET THIS YEAR.
construction. Low interest rates in the early 2020s made financing more accessible for developers, while strong rental demand and rising rents incentivized new projects.
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EVOLVING TENANT DEMOGRAPHICS AND PREFERENCES As noted in the previous section, markets with the most available multifamily properties are seeing a decline in rental value, which equates to more choice for the renter when selecting a home. To make sure your rentals are beating the competition, let’s discuss the insights we can deduce from renters’ demographic trends.
Gen Z’s Growing Influence
The majority of households are headed by adults under the age of 35. Crazy as it sounds, the oldest Gen Z’ers are nearing 30 years old. As a dominant force in the rental market, Gen Z’ers are more likely to seek out properties with eco- friendly features, smart home technologies, and shared spaces that foster social interaction.
To attract and retain Gen Z renters, property managers should focus on: ✓ Providing self-touring options for interested renters, such as InstaShow ✓ Implementing robust digital platforms for communication, maintenance requests, and rent payments ✓ Offering flexible lease terms and move-in options ✓ Creating Instagram-worthy spaces and amenities that appeal to social media-savvy tenants ✓ Emphasizing sustainability initiatives and green building practices ✓ Providing high-speed internet and tech-enabled amenities throughout the property
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Remote Workers
Remote work opportunities have skyrocketed since the pandemic, significantly impacting rental property design and amenities. To meet the demands of remote workers, property managers are also focusing on:
• Upgrading internet infrastructure to provide reliable, high-speed connectivity
• Offering private meeting rooms and business centers
• Creating outdoor workspaces with Wi-Fi access
• Implementing package management systems to handle increased deliveries
Increasing Number of Older Renters
While most renting households are headed by adults under 35, the 65+ age group is becoming the fastest-growing renter cohort in the United States. With specific needs and preferences that differ from younger demographics, they often seek:
• Accessibility features and single-level living
• Community spaces that promote social interaction
• On-site fitness centers and wellness programs
• Proximity to healthcare facilities and public transportation
• Enhanced security measures and 24/7 maintenance support
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NEW BUILDS COME WITH NEW TECH: HIGHER RENTAL VALUE AND MORE REMOTE WORK OPPORTUNITIES FOR PROPERTY OWNERS With 2022’s new construction finally market-
ready, most new builds come equipped with the latest technology. Built-in tech means higher rental value, better chances of attracting quality tenants, increased automation for property managers, and more opportunities to effectively manage multifamily units remotely.
BUILT-IN TECH MEANS HIGHER RENTAL VALUE, BETTER CHANCES OF ATTRACTING QUALITY TENANTS, AND INCREASED AUTOMATION.
Rise of Smart Home Features in Rentals
Smart home technologies offer convenience and energy efficiency to tenants while providing valuable oversight and notifications to property managers. Popular smart home features in rental units include:
• Smart thermostats for energy management
• Keyless entry systems, smart locks, and access control management
• Voice-controlled lighting and appliances
• Smart security cameras and doorbell cameras These technologies not only attract tech-savvy tenants but also offer property managers improved security, reduced energy costs, and remote monitoring capabilities. Smart home features can lead to higher rental rates and increased property values, making them a worthwhile investment for many property owners.
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THE LATEST TOURING SOFTWARE VERIFIES IDENTITIES BY COMPARING REAL-TIME SELFIES TO GOVERNMENT ISSUED IDS.
ADOPTION OF AI AND MACHINE LEARNING IN PROPERTY MANAGEMENT Artificial intelligence and machine learning are transforming property management practices, adding security amid the rise of real estate scams, and offering innovative solutions for various aspects of operations: • Tenant screening: AI algorithms can analyze applicant data quickly and accurately, reducing bias in the selection process. The latest touring software verifies identities by comparing real-time selfies to government issued IDs, also captured in real time. • Predictive maintenance: Machine learning models can forecast equipment failures, allowing for proactive maintenance and reducing downtime. • Energy optimization: AI-powered systems can adjust building systems in real time, maximizing energy efficiency. • Chatbots for customer service: AI- driven chatbots can handle routine inquiries, freeing up staff for more complex tasks.
DIGITAL TOOLS CHANGING TENANT COMMUNICATION AND PROPERTY MARKETING
The adoption of property management software and apps is revolutionizing how property managers interact with tenants and market their properties:
• Online portals for rent payments, maintenance requests, and lease management
• Virtual reality tours for listings, and self-tours for increased traffic and secure access management
• Social media integration for community engagement and brand building
• Data analytics tools for market analysis and performance tracking These digital tools provide 24/7 access to services, streamline communication, and offer valuable insights into tenant preferences and behavior. As technology continues to evolve, its integration into rental properties will likely deepen, offering new opportunities for innovation in the multifamily sector. Property managers who embrace these technological advancements will be better positioned to meet the changing needs of tenants and stay competitive in an increasingly digital marketplace.
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WORKS CITED 1. Bond Street Mortgage. (2024, February 1). “An Insight into the Impact of Increasing Apartment Supply on Rent Prices” Bond Street Mortgage. https://bondstreetmortgage.com/an-insight-into-the-impact-of-increasing- apartment-supply-on-rent-prices/ 2. Cilluffo, A. (2024, April 14). More U.S. households are renting than at any point in 50 years. Pew Research Center. https://www.pewresearch.org/short-reads/2017/07/19/more-u-s-households-are-renting-than-at-any-point-in-50- years/ 3. Maher, L. (2024, August 7). 3 Ways Young renters want the rental industry to change. InstaShow. https:// instashow.app/3-ways-young-renters-want-the-rental-industry-to-change/ 4. Salviati, C. (2024, June 18). Cooling rent growth demonstrates the impact of new supply. Apartment List. https:// www.apartmentlist.com/research/cooling-rent-growth-demonstrates-impact-of-new-supply
LEAH MAHER Marketing Consultant InstaShow | Boxlty Access Systems
Leah is a marketing consultant and copywriter in Pennsylvania, currently working with InstaShow to articulate how their software solutions are designed by and for real estate professionals to make their lives easier. With a degree in Media Studies and Business from Temple University, exploring and understanding the symbiosis between society and technology is a longtime passion for Ms. Maher.
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Knowing that major changes are planned for 2025, what should you do about tax planning for the rest of 2024? The election is over, so we know the direction taxes will go. We just don’t know what exactly will change. Will we get 100% bonus depreciation again? Will it be retroactive? Will there be increased tax credits? What will happen to the solar tax benefits? WHAT IS HAPPENING NOW.
Bonus depreciation for 2024 is at 60%. That means that cost segregations are still critical for any real estate placed in service during 2024. And remember that you get the 60% bonus even if the property isn’t placed in service until December 31. The key is to make sure it’s “placed in service.” This doesn’t mean it has to be rented. It just must be available and held out for rental.
When it comes to tax planning, the devil really is in the details. You may find out you have more or less taxable income than you expected. If you have little or no taxable income, you may even want to postpone deductions to 2025. This way you won’t waste your tax brackets, standard deduction or itemized deductions. (Itemized deductions other than charitable contributions do not carry over). Many of you are breathing a sigh of relief over the estate tax exclusion, expecting it to stay the same under the Trump Administration. While it will likely stay where it is for the next four years, it’s still a good idea to get your estate planning done. What most people don’t realize is how much good income tax planning can be done as part of your estate plan. WHAT MOST PEOPLE DON’T REALIZE IS HOW MUCH GOOD INCOME TAX PLANNING CAN BE DONE AS PART OF YOUR ESTATE PLAN.
COST SEGREGATIONS ARE STILL CRITICAL FOR ANY REAL ESTATE PLACED IN SERVICE DURING 2024.
If you are like many property investors, you may have had a tough year. If you are in a low tax bracket, you may be tempted to hold off doing the cost segregation until 2025. Just remember that net operating losses carry over. And if you are subject to the business loss disallowance rules, the excess business loss becomes a net operating loss in the succeeding year. Most important is that you sit down with your CPA and run your numbers.
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WHAT WILL HAPPEN IN 2025?
Here is what we do and don’t know. It’s likely that much of the 2017 law will be extended. That includes returning to 100% bonus depreciation in 2025 and beyond as well as full deduction for research and development expenses. The 20% pass-through deduction likely is safe as is the 21% corporate tax rate. Capital gains rates will stay where they are as will most income tax rates. And many of the tax benefits for renewable energy could be clawed back. What we don’t know is what will happen with the SALT deduction and with many of President Trump’s campaign promises, such as not taxing tips, overtime pay and social security. Unless the Republicans agree to higher deficits, these provisions are unlikely to be fully enacted. They also represent a less-than-ideal tax policy. Most important is that you have a flexible wealth and tax strategy and a great relationship with a strong tax advisor who is a CPA. CPA’s have a broad base of knowledge and are excellent at running numbers and projecting different tax planning scenarios. They work with many different business clients and see lots of different situations. Their job is to advise you on the best course of action for your specific situation. A good CPA will be willing to work with the rest of your team, including your attorney, insurance agent and bookkeeper. Don’t be swayed by highly marketed tax advisors who don’t have the qualifications of a good CPA. And beware of tax scams. The general rule is that someone is going to get taxed on the income you earn. Your job is to make sure it’s taxed at the lowest rate possible.
THE 20% PASS-THROUGH DEDUCTION LIKELY IS SAFE AS IS THE 21% CORPORATE TAX RATE.
TOM WHEELWRIGHT®, CPA CEO WealthAbility
Tax and wealth expert Tom Wheelwright® is a CPA, CEO of WealthAbility®, Rich Dad Advisor, entrepreneur, international speaker, and author of the bestselling books The Win-Win Wealth Strategy and Tax-Free Wealth. Wheelwright is the CPA for Robert Kiyosaki and has spoken on stage on six continents to over 100,000 entrepreneurs, small business owners and investors. He also is the host of two popular podcasts: The WealthAbility® Show with Tom Wheelwright® CPA and The WealthAbility® for CPAs Show.
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This organization receives financial support for offering this auto benefits program. WATERCRAFT 1Average savings based on a countrywide survey of new customers who reported savings when they switched to Liberty Mutual between 10/2021 and 09/2022. Savings will vary. Comparison does not apply in MA. 2The property damage must be covered by your policy, and repairs completed by a Guaranteed Repair Network Vendor. Guaranteed Repair Network not available in Rhode Island or Massachusetts. In Massachusetts we offer you our Superior Service Program (SSP), which is similar to the Guaranteed Repair Network, however, the estimate is completed by a Liberty Mutual appraiser. For more information, speak with your Liberty Mutual Claims Representative. 3Optional. Subject to a deductible. May vary by state. Coverage underwritten and provided by Liberty Mutual Insurance Company or its subsidiaries or affiliates, which is licensed in all 50 states and the District of Columbia. In Texas, coverage provided and underwritten by one or more of the following companies: Liberty Insurance Corporation, Liberty Lloyds of Texas Insurance Company, Liberty Mutual Fire Insurance Company, Liberty Mutual Personal Insurance Company, Peerless Indemnity Insurance Company, and Liberty County Mutual Insurance Company. Equal Housing Insurer ©2024 Liberty Mutual Insurance ANP686950-11 TX-AH 2024/01 AUTO | HOME | RENTERS | UMBRELLA | MOTORCYCLE | CONDO |
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As affordable housing remains a challenge across the U.S., fair housing laws aimed at preventing discrimination against low-income applicants have gained attention. Though not federally protected, the source of income discrimination is being addressed at state and local levels, particularly as it relates to residents relying on government subsidies or housing vouchers. AVOIDING LOW-INCOME DISCRIMINATION AND STEERING IN HOUSING: A PROFESSIONAL GUIDE
Coupled with the issue of “steering,” these practices not only violate fair housing principles but also perpetuate inequality, thereby affecting the vulnerable populations most in need of housing opportunities. Steering occurs when housing providers subtly direct potential residents to or away from specific housing options based on income, race, or other
protected characteristics. Despite being illegal, this practice often results in economic or racial segregation. With increasing scrutiny on such behaviors, housing providers must be vigilant in their application processes, ensuring that they don’t inadvertently participate in discriminatory actions that violate both ethical standards and legal obligations.
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UNDERSTANDING THE LEGAL LANDSCAPE
STEERING AND ITS DETRIMENTAL EFFECTS In these regions, it is illegal for property managers to refuse an application solely because a potential resident’s rent payment comes from a subsidy program. This means that landlords and housing providers must accept all legal forms of income as part of their applicant’s financial qualifications and may not exclude individuals simply because their income comes from non-traditional sources, such as government programs. Discrimination based on income source is becoming an area of heightened legal focus. While the Fair Housing Act protects individuals from discrimination based on race, color, religion, sex, disability, familial status, and national origin, it does not directly address the source of income. However, an increasing number of states and local jurisdictions have taken proactive steps to address this gap by passing laws that prohibit housing discrimination based on income source, particularly in relation to housing vouchers or government assistance programs such as Section 8. While discrimination based on source of income is overtly unlawful in areas where it is protected, steering is a more covert form of housing discrimination that can be harder to identify and combat. Steering typically manifests as subtle suggestions or behaviors that guide individuals away from certain properties or neighborhoods based on perceptions of their financial status. Housing providers may not directly say that a unit is unavailable to someone with a low income, but they may recommend different properties they perceive as “more appropriate” for that individual. Steering is harmful because it reinforces housing segregation and limits choices for residents, especially those from lower income backgrounds. Furthermore, it violates fair housing laws and can lead to significant legal and financial repercussions for housing providers who engage in this practice, whether consciously or unconsciously.
DISCRIMINATION BASED ON INCOME SOURCE IS BECOMING AN AREA OF HEIGHTENED LEGAL FOCUS.
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BEST PRACTICES FOR PROPERTY MANAGERS TO AVOID DISCRIMINATION AND STEERING To avoid both overt and subtle forms of discrimination, property managers must adopt clear and unbiased practices in resident screening and communication. Below are some essential best practices that housing providers can follow to ensure fairness in their processes:
Property managers should implement standardized, objective resident screening processes that are applied uniformly to all applicants.
They should ensure clear communication of financial requirements like income- to-rent ratios without excluding legal income sources, such as housing vouchers.
They must also stay informed of local laws regarding sources of income discrimination and adjust policies to remain compliant.
Regular training is essential to avoid steering and ensure fair treatment for all applicants.
Additionally, internal audits help monitor compliance and a commitment to diversity fosters inclusive housing environments for individuals from all financial backgrounds.
CONCLUSION As the legal landscape continues to evolve, housing providers must remain diligent in their efforts to avoid both income-based discrimination and steering. Property managers who operate with transparency, fairness, and respect for the law are not only protecting themselves from legal risk but are also contributing to the creation of equitable housing opportunities for all. By understanding and complying with local regulations, offering training on steering
practices, and implementing fair screening processes, housing professionals can ensure they are fostering an inclusive and fair housing environment. In this way, the entire housing industry can contribute to a more just and equitable system, where residents are judged on their ability to pay rent—regardless of the source of that income—and have equal access to housing opportunities across all neighborhoods and price ranges.
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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As the rental landscape shifts, landlords are encountering a growing number of non-traditional tenants, including freelancers, recent graduates, and international students. According to Statista , the U.S. workforce is projected to include 86.5 million freelancers by 2027, accounting for 50.9% of all workers. TOP 3 WAYS TO PROTECT RENTAL INCOME WHEN RENTING TO FREELANCERS, RECENT GRADUATES, AND MORE
This shift underscores the need for landlords to be prepared to accommodate renters who may not have conventional income streams or employment histories, presenting both an opportunity to expand the tenant pool and a challenge in mitigating rental income loss as a result of rent defaults.
However, with the right tools and strategies, landlords can confidently welcome these tenants while safeguarding their rental income and profits. Here are the top three ways to protect your rental income and minimize risk when renting to non- traditional tenants.
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Utilize Rent Coverage from TheGuarantors 1
For many landlords, traditional screening criteria such as credit scores and steady income sources are vital for assessing risk. But with today’s growing diversity in renter profiles, including unique work arrangements, not every qualified tenant will meet these standards. That’s where TheGuarantors’ Rent Coverage product comes into play. TheGuarantors provides coverage that acts as a safety net for landlords by protecting against losses from defaults, damages, vacancies, and lease breaks—all without increasing a landlord’s operating expenses. This service is particularly beneficial when renting to freelancers, gig workers, international students, recent graduates, or non-U.S. citizens, who might not have an established credit score and/or consistent income flow. For example, consider an international student studying abroad in the U.S. with minimal income and no credit history. With TheGuarantors’ Rent
Coverage, landlords can feel secure, knowing that missed rent payments will be covered. Instead of spending your valuable time chasing down guarantors, TheGuarantors serves as cosigner, saving you time and minimizing your losses. This solution can be particularly advantageous in markets where student housing is in high demand or properties near universities, where landlords might see high turnover and fluctuating income risk. The benefit of this coverage extends to tenants far beyond the student demographic; for example, for a freelancer who may not yet have a regular, full-time income, this product serves as a buffer against potential income instability. Rent Coverage from TheGuarantors can also serve as a bridge for non-U.S. citizens who may have a high-paying job but lack the credit history or social security number typically required for leasing. By stepping in as a guarantor, TheGuarantors makes it possible for landlords to qualify these tenants without added risk.
RENT COVERAGE FROM THEGUARANTORS CAN ALSO SERVE AS A BRIDGE FOR NON-U.S. CITIZENS WHO MAY HAVE A HIGH- PAYING JOB BUT LACK THE CREDIT HISTORY.
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Tenant Screening 2
Implement Comprehensive
Tenant screening is a foundational step in the rental process that provides landlords with valuable insights into a tenant’s reliability. But not all tenant screenings are created equally when evaluating non-traditional renters. It’s essential to use a comprehensive screening service that can provide a fuller picture of a tenant’s ability to pay, even if they don’t have a traditional credit or income history. For example, landlords can call a current employer or previous landlord, to get real time information even if the applicant has no social security number or credit history. This approach can reveal signs of responsibility and financial stability that might not appear in a traditional credit check. In addition, landlords can order a criminal history report from AAOA using only the applicant’s name and date of birth or contact AAOA for an international tenant screening quote. Landlords can also review bank statements or tax returns, helping to paint a more accurate picture of the applicant’s suitability as a tenant. Combining tenant screening tools with added, incremental risk mitigation methods like TheGuarantors’ products enables landlords to make better-informed decisions when renting to non-traditional renters.
Offer Deposit Alternatives with TheGuarantors’ Deposit Coverage 3
Security deposits are a tried-and-true way to safeguard rental income against damage and defaults. However, for some renters, especially those with limited liquidity, a traditional deposit can be a significant barrier. TheGuarantors’ Deposit Coverage product provides a flexible solution that benefits both landlords and tenants, offering tenants a lower-cost deposit alternative while offering landlords robust financial protection. Instead of requiring renters to pay a full deposit upfront, TheGuarantors’ Deposit Coverage allows tenants to pay a smaller, one-time fee. This product is especially helpful for tenants who might lack the cash reserves for a hefty security deposit, allowing them to keep more of their cash and lower move-in costs. For landlords, it provides the same financial coverage as a traditional deposit,
IT’S ESSENTIAL TO USE A COMPREHENSIVE SCREENING SERVICE THAT CAN PROVIDE A FULLER PICTURE OF A TENANT’S ABILITY TO PAY.
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including protection against property damage and unpaid rent, while also helping to attract a broader pool of renters. For example, freelancers with irregular income or retirees with sufficient savings but no steady income can move in without paying a hefty deposit, reducing vacancy times for landlords. For landlords, it’s a win-win: they retain the financial protection they need while offering renters a convenient, more affordable entry to housing.
INSTEAD OF REQUIRING RENTERS TO PAY A FULL DEPOSIT UPFRONT, THEGUARANTORS’ DEPOSIT COVERAGE ALLOWS TENANTS TO PAY A SMALLER, ONE-TIME FEE.
CONCLUSION As the rental landscape changes, more non- traditional renters, including freelancers, recent graduates, and international students, are entering the market. Landlords who can adapt their leasing strategies to attract and retain these renters are well-positioned to benefit from a broader, more diverse tenant pool. Using tools like TheGuarantors’ Rent and Deposit Coverage products provides financial assurance when renting to high-potential but non-traditional tenants. Coupled with AAOA’s comprehensive tenant screening services, these solutions allow landlords to approach each applicant with a nuanced understanding of their reliability and ability to meet financial obligations.
Incorporating these strategies not only helps protect rental income but also enables landlords to tap into new, promising markets with confidence. By focusing on innovative solutions like these, landlords can maintain a healthy occupancy rate, mitigate financial risks, and ultimately, drive long- term profitability in a competitive rental market. INCORPORATING THESE STRATEGIES NOT ONLY HELPS PROTECT RENTAL INCOME BUT ALSO ENABLES LANDLORDS TO TAP INTO NEW, PROMISING MARKETS WITH CONFIDENCE.
FRANK JACHETTA Director, SMB Platform TheGuarantors
Frank is a veteran in the real estate space with 17 years’ experience providing financial tools to landlords. He is currently expanding the reach of TheGuarantors’ industry-leading rent and deposit protection to independent landlords and real estate investors.
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Donald Trump’s return to the White House has significant implications for the future of tax-deferred exchanges under Internal Revenue Code (IRC) Section 1031, commonly known as 1031 exchanges. These exchanges allow real estate investors to defer capital gains taxes by reinvesting proceeds from the sale of a property into a similar, or “like-kind,” property. The Harris campaign had proposed substantial limitations on these exchanges, which now seem unlikely to materialize under the new administration. 1 UNDERSTANDING 1031 EXCHANGES PROPOSED CHANGES BY THE HARRIS CAMPAIGN TRUMP AND THE FUTURE OF 1031 EXCHANGES
Established in the early 20th century, Section 1031 of the IRC permits real estate investors to defer paying capital gains taxes on the sale of a property provided the proceeds are reinvested into other business or rental real estate within a specified timeframe. This mechanism has been instrumental in promoting investment and liquidity within the real estate market, enabling investors to upgrade or diversify their holdings without immediate tax burdens.
During the 2024 campaign, Vice President Harris advocated for significant reforms to 1031 exchanges. The proposed changes included capping the deferral of capital gains at $500,000 per taxpayer annually, or $1 million for married couples filing jointly. Gains exceeding these thresholds would be subject to immediate taxation. The rationale behind this proposal was to increase tax revenues and address perceived inequities, as critics argue that 1031 exchanges disproportionately benefit wealthy investors. 2
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THE ELECTION OUTCOME: A REPRIEVE FOR 1031 EXCHANGES With Donald Trump’s victory in the 2024 election, the likelihood of implementing the proposed limitations on 1031 exchanges has diminished. The Trump administration has historically supported tax policies favorable to real estate investors, including the preservation of 1031 exchanges. This continuity suggests that the existing framework of 1031 exchanges will remain intact, allowing investors to continue leveraging this tax-deferral strategy.
POTENTIAL IMPACT OF THE PROPOSED REFORMS Had these reforms been implemented, the real estate sector could have faced several challenges: Reduced Investment Activity: The imposition of caps on tax deferrals might have discouraged investors from engaging in property transactions, leading to decreased market activity. Decreased Property Values: A slowdown in transactions could have resulted in reduced demand, potentially lowering property values. Economic Ripple Effects: The real estate industry is interconnected with various sectors, including construction, finance, and services. A downturn in real estate activity could have had broader economic implications. Increased Tax Burden on Small Investors: While aimed at high-net-worth individuals, the proposed caps could have adversely affected smaller investors, particularly in high-value markets where property appreciation often exceeds the proposed thresholds. 3
INDUSTRY REACTIONS
The real estate industry has expressed relief at the election outcome. Many stakeholders had voiced concerns over the proposed reforms, arguing that they would stifle investment and economic growth. The National Association of Realtors and other industry groups had actively lobbied against the proposed changes, emphasizing the importance of 1031 exchanges in facilitating property transactions and supporting the broader economy. 4
LOOKING AHEAD While the immediate threat to 1031 exchanges has subsided, the debate over their role in the tax code is likely to continue. Policymakers may revisit discussions on tax reform, and 1031 exchanges could again come under scrutiny. Investors and industry professionals should remain vigilant and engaged in advocacy efforts to ensure that the benefits of 1031 exchanges are preserved. One strategy in particular serves to hedge against future threats to 1031 exchanges. This involves 1031-exchanging today into one or more “pre-REIT” properties, slated to be acquired in a future transaction under IRC section 721 (aka an “UPREIT” exchange or “721 transfer”). 5 This two-step approach ultimately allows rental property owners to convert their equity from self-operated properties to public REITs, without incurring capital gains taxes.
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CONCLUSION The 2024 presidential election has maintained the century-old status quo for 1031 exchanges, with the proposed Biden/Harris limitations now DOA under a Trump administration. This outcome allows real estate investors to continue utilizing this valuable tax-deferral mechanism, supporting ongoing investment and activity within the real estate market. However, the discourse surrounding tax policy and equity is ongoing, and stakeholders must stay informed and proactive in discussions that could impact the future of 1031 exchanges. For more information about passive real estate investments and 1031 exchanges, please call 1031 Capital Solutions at 1-800-445-5908 or visit our website, 1031capitalsolutions.com.
RICHARD D. GANN, JD Managing Partner 1031 Capital Solutions (800) 445-5908 1031CapitalSolutions.com
Richard (Rick) Gann is an attorney, licensed real-estate broker, and general securities principal specializing in 1031 exchange solutions and he is co-author of the book How to Retire from Being a Landlord.
Disclaimer : This is for informational purposes only, does not constitute individual investment advice, and should not be relied upon as tax or legal advice. Please consult the appropriate professional regarding your individual circumstance. The views of this material are those solely of the author and do not necessarily represent the views of the presenting party, nor their affiliates. There are material risks associated with investing in real estate securities and 1031 replacement properties, including liquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and potential loss of the entire investment principal. The content of this presentation is neither an offer to sell nor a solicitation of an offer to buy any security which can only be made by prospectus. Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC (CAM), an SEC-registered investment adviser. 1031 Capital Solutions is independent of CIS and CAM.
1. https://www.thestreet.com/retirement-daily/your-money/proposed-section-1031-changes-could-be-disastrous 2. https://www.kiplinger.com/real-estate/why-the-attack-on-1031-exchanges-is-likely-to-fail-again 3. https://www.bdo.com/insights/tax/2024-election-watch-comparing-the-presidential-candidates-potential-tax-policies 4. https://www.nar.realtor/section-1031-like-kind-exchange 5. https://www.law.cornell.edu/uscode/text/26/721
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NAVIGATING COMMERCIAL BANK LOANS FOR APARTMENT BUILDINGS
Securing a commercial loan for an apartment building can be a complex process, but understanding the typical requirements that banks look for can help streamline your application and increase your chances of approval. Whether you’re a seasoned investor or just entering the commercial real estate space, meeting the specific criteria set by commercial lenders is crucial to securing financing. Here are some of the most common requirements banks have for lending on apartment buildings.
Down Payment / Equity Requirements
#1
Property Type and Purpose
#2
The first consideration for any commercial loan is the type of property being financed. Banks typically focus on well-maintained, income-producing buildings. The loan application will be evaluated based on the property’s ability to generate consistent rental income, which serves as the primary source of repayment. In addition to the property’s size, banks will evaluate its location. Properties in high-demand rental markets or areas with strong economic fundamentals are seen as less risky investments for lenders, which may also lead to more favorable loan terms.
One of the major factors commercial banks consider when lending for apartment buildings is the borrower’s equity contribution. This down payment, also known as the equity investment, is seen as a sign of the borrower’s commitment to the investment. Some banks may adjust these requirements depending on the borrower’s experience and the specific characteristics/income of the property.
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AS A RULE OF THUMB, BANKS TYPICALLY EXPECT BORROWERS TO HAVE LIQUID ASSETS EQUAL TO AROUND 10% OF THE LOAN AMOUNT AVAILABLE.
#3
Liquidity Requirements
#4
Experience in Real Estate
In addition to the down payment, commercial banks often require borrowers to have a certain level of liquidity on hand. This ensures that the borrower can cover unexpected costs, such as repairs, vacancies, or other financial setbacks, during the loan’s term. As a rule of thumb, banks typically expect borrowers to have liquid assets equal to around 10% of the loan amount available. This liquidity requirement helps mitigate the risk of default in the event of unforeseen issues that might impact the property’s cash flow. For example, if you are securing a $5 million loan, you might need to have $500,000 in liquid reserves, such as cash, stocks, or other easily accessible assets. Having sufficient liquidity demonstrates financial stability and reassures lenders that you can manage the property effectively.
Commercial lenders place significant importance on the borrower’s experience in real estate investment, particularly when dealing with multifamily properties. Lenders are more likely to approve a loan for an investor with a proven track record of managing similar properties successfully. This includes experience in acquiring, managing, and operating apartment buildings. If you’re a new investor, banks may still lend to you, but you might need to bring on a more experienced co-investor or property manager to strengthen your application. Lenders will also evaluate the level of management expertise you have in place for the property. Having a reputable property manager or management company can be a key factor in getting the loan approved.
#5 Creditworthiness and Debt Service Coverage Ratio (DSCR)
Your credit score is another critical element in securing a commercial mortgage. While commercial loans are generally based more on the property’s income potential than on the borrower’s personal credit, a strong credit score still plays a role in determining the loan’s interest rate and terms. Most banks prefer borrowers with a credit score of at least 680, though higher scores may be required for larger loans or more competitive terms. Another important factor is the Debt Service Coverage Ratio (DSCR), which measures a property’s ability to cover its debt payments. Banks typically look for a DSCR of 1.20 or higher, meaning the property generates at least 20% more income than is required to cover debt payments. A higher DSCR indicates that the property is more likely to generate consistent cash flow, which reduces the risk for the lender.
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#6 Appraisal and Property Inspection
CONCLUSION Securing a commercial loan for an apartment building requires careful planning and preparation. Understanding the key requirements from commercial banks—including liquidity, down payment, experience, and financial metrics like creditworthiness and DSCR—can help ensure a smooth loan application process. If you’re unsure about meeting these requirements or navigating the commercial loan landscape, it may be helpful to work with a commercial mortgage broker who can guide you through the process and help you find the best financing options for your needs. Before approving a loan, banks will require an independent appraisal of the property. This appraisal determines the market value of the apartment building and ensures that it is worth the loan amount. In addition to the appraisal, lenders may also request a property inspection to assess the condition of the building, identifying any potential maintenance issues that could affect the property’s long-term value.
PATRICK MARIN-FINN Senior Loan Officer Convoy Capital patrick@convoy-cap.com
Patrick helps secure commercial financing for an array of property types including multifamily, office, industrial, retail, land, and construction. He is well connected with national and regional funding sources including commercial banks, private & hard money lenders, agency lenders, & CMBS lenders.
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