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.
Tenant Filed Bankruptcy! Can You Evict?
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FALL 2026 IRS AUDIT: ARE YOU NEXT?
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What Outdated Building Access Is Really Costing You Avoid Triggering Taxes When Selling Your Rental Beware of Charging Hidden Rental Fees PAGE 04 PAGE 39
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What Makes Renters Stay?
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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 Brian Tulibaski Christian Walsh David Holland Dawn Intili Dr. Michael Threatt Dwight Kay
CONTENTS
04 11 17 23 28 39 34
WHAT OUTDATED BUILDING ACCESS IS REALLY COSTING PROPERTY OWNERS AND HOW TO REDUCE IT
Gita Faust Jen Tindle
IRS AUDIT: ARE YOU NEXT?
Joshua Christensen K’Dia Parker Brooks Kaylee McMahon-Boncour Lauren Lieb Leslie Tucker, Esq. Lisa Cozzi Mark Cunningham Meghan Martinsen
CAUTION: AUTOMATED LATE FEES ARE A FAIR HOUSING RISK
COST SEGREGATION FOR APARTMENT BUILDINGS: EVERYTHING OWNERS NEED TO KNOW
Nancy Abrams Nathan Resnick Richard D. Gann, JD Rick Albert Robert Friedman Saurabh Bajaj
PREVENT A LAWSUIT WITH A REPAIR REQUEST PAPER TRAIL
STOP WATER DAMAGE BEFORE IT STARTS
Steven Fielding Taylor Avakian
AVOID TRIGGERING TAXES WHEN EXCHANGING YOUR RENTAL PROPERTY
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Welcome to RENT! Welcome to Autumn, Some dramatic weather is predicted in the next few months. Is your property ready? Many of the articles in this issue of RENT offer you preventive steps to protect your rental business. We describe how outdated building access, repair requests, and water damage could all lead to trouble. Learn how to avoid an IRS audit and how automated late fees can become a fair housing risk. As always, our contributors answer some very thought-provoking questions, such as what is Cost Segregation? What makes renters stay and why am I not getting more applications? What if you can’t find a replacement property in time for your 1031 Exchange? If a tenant files for bankruptcy, can you still collect rent or evict them? What do insurance underwriters notice before they present a quote? We also discuss the growing movement to end the practice of hidden rental fees by making transparency the safer approach. On a lighter note, a group of property professionals share what’s changing in their markets. In this month’s Rental Radar, we pay a visit to Echo Park, California. We also track some Celebrities on the Move, including Mark Zuckerberg, Travis Kelce and Taylor Swift,and Justin and Hailey Bieber, as well as a surprise appearance by someone who left us in 1977. Happy reading!
50 43
THE NEXT EVOLUTION OF MULTIFAMILY: WHY ENTERTAINMENT IS MOVING FROM FRAGMENTED TO FOCUSED 13 NEW LAWS RESHAPING RENTAL HOUSING
57 62 64 72 78 83 88 90 95
TENANT FILED BANKRUPTCY! CAN YOU STILL COLLECT RENT OR EVICT?
CELEBRITIES ON THE MOVE
7 WAYS YOUR MULTIFAMILY INSURANCE COSTS CAN INCREASE
BEWARE OF CHARGING HIDDEN RENTAL FEES
THE RENTAL RADAR: ECHO PARK, CA
5 THINGS TO CHECK WHEN YOUR RENTAL ISN’T GETTING APPLICATIONS LOS ANGELES LANDLORD MEETUP WITH TOP ATTORNEYS ON OCTOBER 15 WHAT IF YOU CAN’T FIND A REPLACEMENT PROPERTY IN TIME FOR YOUR 1031 EXCHANGE?
WHAT MAKES RENTERS STAY?
Disclaimer: All content provided here-in is subject to AAOA’s Terms of Use . Nothing contained on this website constitutes tax, legal, insurance or investment advice, nor does it constitute a solicitation or an offer to buy or sell any security or other financial instrument. AAOA recommends you consult with a financial advisor, tax specialist, attorney or other specialist who is able to properly advise you.
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ADVERTORIAL
WHAT OUTDATED BUILDING ACCESS IS REALLY COSTING PROPERTY OWNERS AND HOW TO REDUCE IT YOUR FRONT DOOR HAS AN OPERATING COST YOU’RE PROBABLY IGNORING Picture a property owner reviewing their monthly operating statement. Trash pickup, turnover repairs, and utility costs are all visible itemized expenses. Access control rarely gets the same scrutiny. As long as the buzzer rings and the door unlocks, it quietly gets filed away as solved. Instead of being questioned, service calls, rekeying, replacement credentials, staff hours, and telecom charges tied to legacy hardware keep accumulating in the background.
capital expense (CapEx): choose a system, install it, move on. But the better question is: what does it cost to operate year after year, and what does it actually deliver in return? But there's a bigger issue hiding underneath that accounting exercise. Many owners keep legacy building access control in place simply because it still works. They don’t realize that newer systems can deliver far more capability, often at a comparable or lower ongoing cost.
Multifamily access control is usually treated as a
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WHERE THE HIDDEN COSTS ADD UP
Outdated access drains a property two ways: through direct costs that show up on invoices, and through staff time that doesn't, but adds up just as much.
Direct Financial Costs
Many legacy telephone entry systems still run on dedicated analog phone lines, contributing to what are often called commercial intercom landline costs. The FCC has been accelerating the shift away from this infrastructure. They are streamlining the process carriers use to retire copper lines under its 2026 Network and Services Modernization Order, part of a broader trend commonly called the "copper sunset."
Tenant turnover adds its own recurring costs. Every move-out that requires rekeying a lock or reissuing a fob or key card is a cost tied directly to occupancy. Then there are technician visits. A single service call for a directory upgrade or wiring issue rarely stays isolated to the technician's invoice. It also pulls in staff coordination time and disrupts residents waiting on access.
The Operational Drain
Staff time is the less visible half. Letting a plumber or inspector in often means a physical trip just to open the door. Multiplied across several properties, it becomes a meaningful chunk of a week. Manual access management compounds it further. Updating directories, issuing credentials, and resolving lockouts all draw on staff hours that could go toward higher-value work.
EVERY MOVE-OUT THAT REQUIRES REKEYING A LOCK OR REISSUING A FOB OR KEY CARD IS A COST TIED DIRECTLY TO OCCUPANCY.
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THE ACCESS COST AUDIT: HOW MUCH IS YOUR BUILDING SPENDING? It is easy to guess a rough number. A real one takes twelve months of invoices and a bit of honesty about staff time.
audit shouldn’t stop at the total. The more useful question is what that spend is actually buying. A property paying a comparable amount to what it paid years ago may now be getting far less capability than what’s available for similar or even lower, ongoing costs. Seen this way, modernizing access isn’t only a resident amenity decision. It’s a financial one, tied directly to efforts to reduce property operating costs and evaluated the same way as any other operating expense. cutting annual expenses by $ 3,000 adds roughly $50,000 in value ($3,000 ÷ 0.06) At a 6% cap rate,
Start with what’s traceable. Add up landline or telecom costs, rekeying and credential replacement, technician service calls, staff travel for vendor access, and hours spent on manual access management. The total is what the property is really paying to operate access each year. Costs vary widely depending on property size, system type, portfolio scale, and how a building is operated, so the exercise is worth running against a property’s own numbers rather than an industry average. This number matters beyond the invoice itself. Reducing recurring operating expenses increases net operating income (NOI), which drives property value. At a 6% cap rate, for example, cutting annual expenses by $3,000 adds roughly $50,000 in value ($3,000 ÷ 0.06), turning a modest recurring savings into a real balance sheet number. But the
WHAT MODERN BUILDING ACCESS SHOULD LOOK LIKE
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Legacy systems typically require separate hardware and vendors for the intercom, credentials, and remote entry, each with its own maintenance. Today's platforms fold all of that into one, running over standard internet connectivity and Power over Ethernet instead of dedicated phone lines. The clearest shift is remote management. Access can be added, modified, or revoked from anywhere instead of requiring someone on-site for every change. Credential flexibility has expanded too. Mobile credentials, PIN codes, facial recognition, physical cards, and traditional phone-based access can all live on the same platform, so modernizing means more ways in for residents.
Property management integrations remove another layer of manual work, granting access automatically at move-in and revoking it at lease-end. Visitor and vendor access follows the same logic. A video intercom system lets staff answer calls from anywhere, and temporary, time-limited credentials replace the physical key handoff that once required an on-site coordinator.
A VIDEO INTERCOM SYSTEM LETS STAFF ANSWER CALLS FROM ANYWHERE.
A Real-World Example: How Integrated Systems Like Swiftlane Work
Platforms like Swiftlane are one example of this model in practice: video intercom, credential management, and access control folded into a single connected system rather than several standalone pieces.
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For owners weighing an apartment intercom replacement, an integrated option is worth factoring in. Consolidating into one platform generally means fewer points of failure and a clearer picture of what access actually costs to run each month.
Weighed against that, the case is hard to ignore. Many owners are quietly paying a premium to keep running legacy technology when something like Swiftlane offers considerably more for about the same cost.
Stop Looking at the Sticker Price: Calculate Total Cost of Ownership Keeping an older system in place isn't automatically the economical choice just because it's already installed.
gives a clearer answer than comparing quotes on day one. Modernizing access does more than cut overhead. Solutions like Swiftlane give residents a more convenient way to access their building, manage visitors, and help a property stay competitive in a rental market where amenities increasingly shape a renter's decision.
The real decision comes down to two questions: what the system costs to operate, and what the property gets in return. Evaluating access over a three- to five-year window, weighing telecom charges, maintenance, service calls, credential replacement, rekeying, and staff labor together,
Ready to see what modern building access could look like for your property? Visit Swiftlane to learn more or request a demo.
SAURABH BAJAJ CEO and Founder Swiftlane Swiftlane.com (833) 607-9438 Connect on Linkedin
Saurabh Bajaj is the CEO and founder of Swiftlane, a building access technology company focused on helping property owners and operators modernize access and simplify property operations. With a background in technology and entrepreneurship, Saurabh has spent years working at the intersection of building security, access control, and property management. He founded Swiftlane to make building access more convenient for residents, while reducing the operational burden of managing access for property teams.
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Engineering-Based Cost Segregation Studies
$512,000 in first-year deductions. One $2M apartment building. Our apartment studies reclassify 32%+ of building cost from 27.5-year depreciation into 5-, 7-, and 15-year property — deductions you can take now instead of decades from now.
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Example: $2M apartment purchase Purchase price
Year-one deduction with 100% bonus depreciation $512,000 vs. ~$58,000 with straight-line depreciation alone
$2,000,000 ($400,000) $1,600,000
Less land value Building basis
$512,000
Reclassified at 32%
Illustrative example. Actual results depend on your property, land allocation, and tax situation — that's what the free analysis tells you.
Engineering-based, not estimated Real engineering studies routinely find 15–30% more depreciation than software estimates — more than covering the cost of the study.
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IRS AUDIT: ARE YOU NEXT? I had a client who spent years building a successful multifamily portfolio. The properties were solid, occupancy was good, and experienced management teams handled the day-to-day operations. By any reasonable measure, the business appeared to be doing well. Then the IRS received information about the portfolio from an outside source. Whether that information actually triggered the examination was never entirely clear. What became clear very quickly, however, was that the IRS was not simply looking at the properties themselves. The examination focused on whether the income, expenses, tax filings, and other financial records all told the same story. And that is a very different kind of examination.
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SUCCESS IS NOT THE RED FLAG A successful rental portfolio is not automatically an audit target. Tax returns can be selected for several reasons, including statistical screening, transactions involving other taxpayers, or questions about specific items reported on a return.
The concern begins when the numbers cannot be supported or when different records tell different stories. Here are some examples:
The property management report shows one amount of rental income. QuickBooks shows another. The tax return reports a third. The depreciation schedule does not reconcile with the purchase price and subsequent capital improvements. The loan balance in the accounting records has not agreed with the lender's statement for two years. Payment leaves one related entity but never appears in the books of the entity that received it.
If no one can explain the differences, a bookkeeping problem can quickly become a tax problem.
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A SUCCESSFUL RENTAL PORTFOLIO IS NOT AUTOMATICALLY AN AUDIT TARGET.
WHEN A PAPER LOSS NEEDS SUPPORT
Real estate is one of the few investments that can produce positive cash flow while reporting a taxable loss. Depreciation, cost segregation, and bonus depreciation may all contribute to that result. These are legitimate tax strategies when applied correctly and supported by appropriate records. When you use rental real estate losses against other income, questions may arise about the passive activity loss rules, material participation, and real estate professional status. Real estate professional status is not simply a box to check. Generally, you must spend more than 750 hours during the year qualifying real property trades or businesses in which you materially participate. Those hours must also represent more than half of the personal services you perform across all trades or businesses. This is where documentation becomes essential. A calendar or activity log maintained throughout the year creates a much stronger defense than hours reconstructed after an examination notice arrives. By then, you may remember the large renovations and major leasing decisions but forget about the numerous smaller activities that made up the year.
REAL ESTATE PROFESSIONAL STATUS IS NOT SIMPLY A BOX TO CHECK.
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THE LLC WEB NOBODY CAN EXPLAIN There are good reasons to hold rental properties in multiple LLCs. Separate entities may provide liability protection, segregate investors, satisfy lender requirements, or support an estate plan. Complexity itself is not the problem.
The problem begins when money moves among those entities, and no one can clearly explain why. Here are some examples:
A property LLC pays a management company controlled by the same investor.
One entity lends money to another without a promissory note, repayment schedule, or recorded interest. A related construction company performs renovations for several properties. The owner pays a property expense personally, but the transaction never reaches the property’s accounting records. Each transaction may be entirely legitimate. However, each one should have a clear business purpose, supporting documentation, and consistent treatment in the accounting records of both entities. If one company records an intercompany loan receivable, the other company should show the corresponding payable. If one entity reports management fee income, the other entity should generally record the corresponding expense. Those balances should agree.
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WHEN A VACATION BECOMES A TAX QUESTION Personal use of rental property is one of the most consistently misunderstood areas I encounter. If you use a property personally for more than the greater of 14 days or 10 percent of the days it was rented at fair-market value, it may be treated as a residence for that tax year. That can affect how expenses are allocated and whether a rental loss is currently deductible. The problem is not that you take a vacation. The problem is that personal-use days go uncounted, expenses are not properly allocated, and the return is prepared as though no personal use occurred. DO ALL YOUR NUMBERS TELL THE SAME STORY? Family use can create questions as well. Days used by family members generally count as personal-use days, particularly when the property is provided free or below market value. A limited exception may apply when a family member uses the property as a principal residence and pays fair- market rent. Imagine your property management report showing $480,000 of rent collected. QuickBooks shows $452,000, and Schedule E reports a third amount. That does not automatically mean income was hidden. Security deposits may have been included in one report. Owner contributions may have been classified as income. Rent may have been deposited into another entity, or timing differences may explain part of the gap. But until those numbers are reconciled, no one knows. The investors who sleep well are not necessarily the ones with the simplest ownership structures. They are the ones who know that every number on the return has a record behind it, every material transaction can be explained, every loan balance reconciles, and every entity does what it was created to do.
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If an examiner requested the records for one property today, how long would it take to produce a clean Profit and Loss statement, a reconciled loan balance, a rent roll that agrees with the reported income, an accurate depreciation schedule, and documentation for related-party transactions? If the honest answer is “I am not sure,” that does not automatically mean something is wrong. It means you have found the place to start. If you want to find out where your own records stand, I created this free Property Profitability Assessment. It will show you clearly where your
financial visibility is strong and where a gap might be creating a problem you cannot currently see. Because the best time to make sure your numbers can answer the question is before anyone asks.
THE INVESTORS WHO SLEEP WELL ARE THE ONES WHO KNOW THAT EVERY NUMBER ON THE RETURN HAS A RECORD BEHIND IT.
GITA FAUST Fractional CFO & Founder RealEstateAccounting.com
Update bio to Gita Faust is a Fractional CFO, Controller, and Advanced Certified QuickBooks ProAdvisor with more than 25 years of experience helping real estate investors better understand their finances. As the founder of RealEstateAccounting.com, she helps property owners create accurate financial systems, improve cash flow visibility, and make more informed business decisions. Gita specializes in translating complex accounting data into clear, practical insights so investors can better evaluate property performance, identify financial issues, plan for growth, and understand what their numbers are really saying about their real estate business.
This article is for educational purposes only and is not intended as tax or legal advice. Tax treatment depends on individual facts and circumstances. Consult a qualified tax professional or attorney regarding your specific situation.
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AUTOMATED LATE FEES ARE A FAIR HOUSING RISK Software can track balances, apply late fees, send reminders, and flag delinquent accounts without requiring someone to review every payment by hand. However, therein lies a challenge: technology only knows the rules it has been given. It does not understand why a resident paid late, whether an exception has been approved, or when a standard policy may need to be adjusted because of a reasonable accommodation. That is where human judgment still matters. When automated late fees intersect with fair housing, the risk is not necessarily the technology itself. The risk is assuming the system can make decisions that still require people. CAUTION:
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THE CONVENIENCE OF “AUTOMATIC” Automated late fees are appealing because they create consistency. If rent is due on the first and a fee applies after a certain date, the software follows that policy the same way each month. But fair housing does not always fit neatly into an automatic workflow. A resident may have a disability-related reason for requesting a different payment date, and management may determine that an accommodation is appropriate. Once that happens, the standard process may no longer fit
that resident’s situation. Unless someone updates the account correctly, the system may continue doing exactly what it was designed to do, turning consistency into risk. How?
FAIR HOUSING DOES NOT ALWAYS FIT NEATLY INTO AN AUTOMATIC WORKFLOW.
WHEN THE ACCOMMODATION AND THE SYSTEM DON’T MATCH Imagine a resident whose disability-related income arrives later than the property’s regular rent deadline. The resident requests a reasonable accommodation allowing them to pay rent later in the month without a late fee. Management reviews the request and approves the arrangement. Everything appears resolved— until the system automatically assesses the late fee anyway.
The resident may now be following the approved arrangement while still being penalized for it. Now the issue is not necessarily the decision management made, but that the decision never made its way into the system enforcing the policy. An accommodation can be documented and approved, yet still fail operationally if account settings or automated notices aren’t updated to match.
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TECHNOLOGY HANDLES THE ROUTINE. PEOPLE HANDLE THE EXCEPTIONS. None of this means housing providers should abandon automation. Technology is incredibly useful when it is handling routine, repeatable tasks. The key is knowing where automation should stop. Software platforms can recognize when rent hasn’t been posted by a certain date. What it cannot do is understand the context behind that late payment or decide whether a resident may be raising an accommodation issue. That requires a person who knows what to listen for. A meaningful difference exists between a resident saying, “I forgot to pay. Can you remove the fee?” and a resident explaining that a disability-related circumstance affects when their income becomes available. The second conversation may need to move out of the normal collections process and into the property’s reasonable accommodation process.
THE IMPLEMENTATION GAP
Even when the accommodation process works as intended, one more step remains: making sure the system follows the decision. An employee may approve the accommodation but forget to update the account. The late fee may be removed, but the delinquency notice still goes out. A software update could reset an override. Another employee may see a balance and start collection activity without realizing an accommodation is already in place. Any of these situations can turn an otherwise well-handled request into a resident complaint. From the resident’s perspective, the internal explanation matters far less than the result. If they were told they could pay on an adjusted schedule but the system keeps penalizing them, the accommodation isn’t working as intended.
AN EMPLOYEE MAY APPROVE THE ACCOMMODATION BUT FORGET TO UPDATE THE ACCOUNT.
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HUMAN CHECKPOINTS PREVENT CHAIN REACTIONS Automated systems often connect to other parts of the collections process, so one incorrect charge may not stay isolated for long. A late fee creates a balance. That balance may trigger a reminder or delinquency notice. From there, additional collection steps may follow.
The safer approach is not to choose between automation and human oversight. Instead, make sure the two work together. When a payment- related accommodation is approved, the team should know who is responsible for updating the account, whether related notices need to be adjusted, and who confirms that the change worked. Frontline staff also need language that allows them to investigate a concern without immediately defending the system.
This is one benefit of automation—it keeps processes moving. It is also why mistakes can travel quickly. A relatively small fee can become a much larger problem if no one notices that the original charge should never have been assessed.
“Let me review your account and the accommodation on file so we can see why that fee was generated.” A BETTER RESPONSE MIGHT BE:
INSTEAD OF SAYING: “The system charges everyone automatically.”
That small shift keeps the focus on solving the problem rather than treating the software as the final authority.
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AUTOMATION STILL NEEDS OVERSIGHT Automated late fees can make rent collection more efficient and consistent, and housing providers should not have to give up those benefits. But automation works best when it supports good decision-making instead of replacing it. Reasonable accommodations require context, judgment, and follow-through. Once an exception is approved, the process is not complete until the systems enforcing the rent policy reflect that decision. Clear procedures, trained staff, accurate account updates, and a human checkpoint can help
prevent a routine automated fee from becoming a larger fair housing concern. The goal is simple: let technology handle the routine, keep people involved when judgment is needed, and make sure an approved accommodation works in practice as well as it does on paper.
AUTOMATION WORKS BEST WHEN IT SUPPORTS GOOD DECISION-MAKING INSTEAD OF REPLACING IT.
LESLIE TUCKER, ESQ. Principal Partner Williams Edelstein, Tucker, P.C.
Leslie is the Principal Partner of Williams Edelstein, Tucker, P.C., a fair housing defense law firm, and serves as the Assistant Vice President at the Fair Housing Institute. With a career dedicated to defending housing providers across the country, Leslie offers over a decade of expertise in fair housing matters. Leslie represents her clients in administrative fair housing cases, assists with drafting and updating company policies, consults on day-to-day fair housing-related decisions, and provides live training sessions on fair housing laws, federal housing programs, and landlord-tenant issues. Additionally, she is an expert in physical accessibility standards for multifamily housing, encompassing both local building codes and federal requirements like the Americans with Disabilities Act (ADA) and the Fair Housing Act (FHAAG). Leslie has been actively involved in consulting and training with the Fair Housing Institute since 2021.
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Dwight Kay, Founder & CEO of Kay Properties presenting the potential dangers of compulsory 721 UPREITs at last year’s Kay Invetor Day.
PAGE 22 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 los of investment principal. Please read the entire Private Placement Memorandum (PPM) prior to making an investment. This material is not to be considered tax or legal advice. Please speak with your attorney and CPA before considering an investment. All offerings discussed, if any, are Regulation D, Rule 506c offerings. Past performance is not a guarantee of future results. Securities offered through FNEX Capital, member FINRA, SIPC.
COST SEGREGATION FOR APARTMENT BUILDINGS: EVERYTHING OWNERS NEED TO KNOW
Owning a multifamily property requires careful management, but it can also create valuable depreciation opportunities. Cost segregation for multifamily apartment buildings is a tax planning approach that identifies building components that may qualify for shorter recovery periods instead of remaining entirely within the building’s standard depreciation schedule. Apartment/Short term rental (STR) owners who want an early feasibility review can get expert assistance from Cost Segregation Guys, for a no-obligation proposal based on the purchase price, placed-in-service date, and available records. The decision should still be coordinated with a qualified tax professional who understands the owner’s complete tax position. WHAT COST SEGREGATION CHANGES Under the general MACRS rules, the depreciable basis of a residential rental building, excluding land, is typically recovered over 27.5 years. A cost segregation study analyzes the acquisition or construction cost and separates eligible assets into shorter-lived categories, commonly 5-year, 7-year, and 15-year property, while the structural building remains a 27.5-year property. Potential apartment building assets may include appliances, removable floor coverings, certain decorative lighting, qualifying dedicated electrical systems, fencing, landscaping, and parking improvements. Classification depends on how each component is designed and used, so not every item automatically receives a shorter life. Owners can review IRS residential rental property guidance and a detailed multifamily cost segregation overview for additional context.
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WHY MULTIFAMILY PROPERTIES CAN PRODUCE MEANINGFUL RESULTS
Accelerated depreciation deductions that improve near-term cash flow. A detailed fixed-asset schedule that can support future renovation and disposition accounting. Better visibility into appliances, finishes, land improvements, and other property components. The ability to evaluate previously acquired properties through a look-back cost segregation study. For cost segregation multifamily apartment buildings, repeated unit layouts and common- area or site improvements can create many separately identifiable assets. The main benefits may include: HOW BONUS DEPRECIATION MAY APPLY Eligible property with a recovery period of 20 years or less may qualify for bonus depreciation when all statutory requirements are met. Under current federal rules, certain qualified property acquired and placed in service after January 19, 2025, may be eligible for a 100% special depreciation allowance. Owners should review IRS depreciation guidance because acquisition dates, placed-in-service dates, elections, related-party rules, and state conformity can affect the result.
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THE OWNER MAY BE ABLE TO DEDUCT SOME OR ALL OF THE ELIGIBLE AMOUNT THROUGH BONUS DEPRECIATION.
A PRACTICAL COST SEGREGATION EXAMPLE Assume an investor purchases an apartment property for $4 million and reasonably allocates $600,000 to nondepreciable land. The remaining $3.4 million is the depreciable basis. If an engineering-based cost segregation study reclassifies approximately 30% to 35% of the depreciable basis into qualifying 5-year, 7-year, and 15-year assets, the amount eligible for accelerated depreciation would range from approximately $1.02 million to $1.19 million. If these assets satisfy the bonus depreciation requirements applicable to the property’s placed-in-service date, the owner may be able to deduct some or all of the eligible amount through bonus depreciation in addition to claiming regular depreciation on the remaining basis. This is a tax deduction, not a tax credit. The actual tax savings will depend on taxable income, ownership structure, passive activity limitations, elections, federal and state tax treatment, and the investor’s specific circumstances.
IMPORTANT LIMITS, TIMING, AND EXIT PLANNING
Cost segregation accelerates deductions; it does not eliminate tax rules. Apartment owners should consider:
• Passive activity and at-risk rules, which may limit when rental losses can be used. The IRS passive activity rules explain these restrictions. • Depreciation recapture and gain characterization when the property or shorter-life assets are sold. • The expected holding period, planned renovations, and whether accelerated deductions will be usable. • State depreciation rules, which may differ from federal treatment.
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LOOK-BACK STUDIES AND FORM 3115 A study can also be completed after the original acquisition year. In many cases, an owner may claim missed depreciation through an accounting method change and a Section 481(a) adjustment rather than amending multiple prior returns. A Cost Segregation Form 3115 guide can help owners prepare for a discussion with their CPA. CHOOSING A DEFENSIBLE STUDY A reliable apartment building cost segregation study should: • Explain the methodology • Identify the preparer • Reconcile costs to source documents • Provide asset-level classifications. Purchase agreements, settlement statements, appraisals, construction records, depreciation schedules, and renovation invoices can strengthen the analysis. The lowest-priced report is not necessarily the best choice if it lacks engineering support or a clear audit trail.
THE LOWEST-PRICED REPORT IS NOT NECESSARILY THE BEST CHOICE IF IT LACKS ENGINEERING SUPPORT OR A CLEAR AUDIT TRAIL.
FINAL TAKEAWAY
Cost segregation for multifamily apartment buildings can improve the timing of rental property depreciation and free cash for repairs, reserves, debt reduction, or new investments. The strongest decision combines a defensible engineering analysis with tax projections that account for passive losses, bonus depreciation, state rules, and the planned sale date.
For a property-specific estimate, Cost Segregation Guys can prepare a free proposal and explain the study options available for a multifamily asset. Owners should share the proposal with their CPA before making tax elections or filing changes.
NATHAN RESNICK Partner Cost Segregation Guys CostSegregationGuys.com n@costsegregationguys.com Connect on LinkedIn
Nathan Resnick is an active real estate investor and partner at Cost Segregation Guys, a firm trusted by over 10,000 nationwide real estate investors. With over $1B in depreciation realized and lifetime audit support, get a free depreciation analysis for your property today at CostSegregationGuys.com.
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Who is going to pay for this?!
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PREVENT A LAWSUIT WITH A REPAIR REQUEST PAPER TRAIL Every portfolio has one: the maintenance supervisor who has been with the property for twenty years and seems to know everything there is to know about the site. He knows every shutoff valve without looking at a map. He remembers which roof section leaks after a wind-driven rain from the northeast. He knows Building 7 still has the original electrical panels, which apartments have replacement windows, and why Unit 314 keeps tripping breakers every August. He is an incredible asset to the property. He may also represent one of the biggest operational risks in the portfolio. The problem is not that he is likely to make a mistake. The problem is that if a resident dispute, insurance claim, or lawsuit arises months from now, “Mike remembers what happened” is not the same thing as having a record of what happened. Employees leave, vendors change, memories fade, and the person who knew the history may no longer be available when questions are finally asked. That is where the paper trail matters, and the paper trail is much bigger than the work order.
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MOST LAWSUITS START AS ORDINARY PROPERTY PROBLEMS
DOCUMENTATION IS BIGGER THAN WORK ORDERS what was observed, what action was taken, and when. That is the difference between having a maintenance history and having a defensible record. A resident reports a stain on the ceiling. A toilet leaks. A handrail feels loose. A resident complains that the heat is not working properly. A tree limb hangs over a parking area. Then the ceiling leaks again. The resident says the problem was never properly repaired. Someone falls. Mold is discovered. A component fails. An insurance carrier or attorney asks when management first knew there was a problem and what was done in response. At that point, the question is no longer simply whether the team believes it handled the issue correctly. The question is whether the property can demonstrate what was reported, A work order marked “complete” does not necessarily tell anyone what happened.
A strong record should show:
What the resident originally reported When it was reported Who responded What conditions were observed What repair was performed Whether photographs were taken Whether an outside vendor became involved Whether follow-up was recommended How the resident was updated
But documentation should not begin and end with repair requests.
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DOCUMENTATION SHOULD NOT BEGIN AND END WITH REPAIR REQUESTS.
A strong record should show:
Preventive maintenance records Appliance installation dates Model and serial numbers Warranties Roof inspections Septic pump-out records
Elevator certifications Fire protection testing Snow and ice logs Tree inspections
Capital replacement records Vendor recommendations Resident communication
RUN THE “HIT-BY-A-BUS” TEST Imagine that your best maintenance supervisor was hit by a bus tomorrow and could no longer return to work. There is no transition period, no two weeks' notice, and no opportunity to train a replacement. How much critical property knowledge would disappear with that person? Could the rest of the team explain why Unit 314 has had three electrical complaints in two years? Could someone locate the roof warranty or show when
it was last inspected? Could they identify when a water heater was installed, whether it was still under warranty, and what repairs had previously been made? Could they produce snow-removal records showing when a walkway was plowed, salted, and reinspected? If too many answers begin with “We would have to ask Mike,” the property does not have institutional knowledge. It has tribal knowledge.
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DOCUMENT FACTS, NOT CONCLUSIONS Another common weakness in the paper trail is the tendency to record conclusions instead of observations.
Photographs should serve the same purpose. Photos taken before work begins, during the repair, and after completion can preserve conditions that may be impossible to recreate later. The goal is not to create an enormous file for every work order. The goal is to leave enough information that someone reviewing the issue months later does not have to reconstruct the event from memory.
“Resident caused leak” is a conclusion.
“Observed standing water beneath kitchen sink. Supply line was disconnected upon arrival. Resident stated water was discovered at approximately 8:00 a.m.” is documentation.
START DOWNLOADING INSTITUTIONAL KNOWLEDGE NOW
One of the most useful questions an owner, regional manager, or property manager can ask a long-tenured maintenance professional is simple: What do you know about this property that is not written down anywhere?
known problem areas and recurring seasonal issues. Organize preventive maintenance records. Preserve vendor recommendations. Keep snow- removal logs. Track major resident complaints and recurring repairs.
Then start capturing those answers.
Walk the property together. Photograph and label shutoffs. Map utilities. Inventory major equipment. Record model numbers, serial numbers, installation dates, and warranty information. Document
DOCUMENT KNOWN PROBLEM AREAS AND RECURRING SEASONAL ISSUES.
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THE WORST TIME TO SEARCH FOR RECORDS One thing I have learned since moving from
for a lawsuit. It is about running a better property. It creates continuity, preserves institutional knowledge, improves decision-making, and gives owners a clearer understanding of their assets. When a disagreement does become serious, however, the property is left with something far more reliable than anyone’s recollection of what happened.
property management into disaster recovery is that emergencies rarely create operational weaknesses. They expose the ones that were already there. After a major water loss, fire, storm, or other significant event, questions arise quickly. Where is the shutoff? Has this happened before? When was the affected area last inspected? What repairs were previously completed? Which residents reported issues? Are there photographs? Are there maintenance records? The properties that can answer those questions quickly operate very differently from the ones that spend the first day searching through emails, filing cabinets, old work orders, and someone’s memory.
It has a record.
GOOD DOCUMENTATION IS NOT REALLY ABOUT PREPARING FOR A LAWSUIT. IT IS ABOUT RUNNING A BETTER PROPERTY.
Good documentation is not really about preparing
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ADVERTORIAL
STOP WATER DAMAGE BEFORE IT STARTS A water heater leak can go from a small maintenance issue to a major property loss in a matter of hours. Once a tank begins to fail, water may continue flowing until someone discovers the problem and shuts it off, potentially damaging floors, walls, electrical systems, furnishings, and neighboring units. For rental property owners and managers, preventing that damage before it spreads can mean avoiding costly repairs, insurance claims, and tenant disruption. That is the problem the WAGS Valve was designed to address, using a simple mechanical system that automatically shuts off the water supply when a leak is detected.
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WHY THE WAGS VALVE DEFINES WATER HEATER SAFETY Combining proven mechanical engineering with automatic leak response, the WAGS Valve offers a simple yet powerful solution for protecting properties, reducing insurance risks, and enhancing long-term property asset performance.
failures occur annually, with many units reaching the highest risk period after approximately seven to ten years of operation. Preventing uncontrolled water discharge has therefore become a critical component of modern building resilience and preventive maintenance programs. WAGS Valve, short for Water And Gas Shutoff Valve, represents a scientifically engineered mechanical solution designed to prevent costly water heater leaks from escalating into catastrophic property damage. By combining proven mechanical actuation technology with automatic shut-off functionality, the WAGS Valve offers a reliable safeguard for residential, commercial, and multifamily buildings.
As property owners increasingly rely on connected sensors and smart monitoring systems, one of the most effective water damage prevention technologies remains remarkably simple. The
THE HIDDEN RISK OF WATER HEATER FAILURE Water heaters are among the most common sources of significant water damage in buildings. As water heaters age, corrosion, sediment accumulation, and material fatigue can lead to tank leaks or complete failure.
When a conventional water heater begins leaking, the appliance often continues to refill automatically, allowing water to escape continuously until the issue is discovered and addressed. This process can result in substantial structural damage, mold growth, business interruption, and expensive insurance claims.
MILLIONS OF WATER HEATER FAILURES OCCUR ANNUALLY AFTER APPROXIMATELY SEVEN TO TEN YEARS OF OPERATION.
Industry sources note that millions of water heater
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WAGS VALVE FUNCTIONS INDEPENDENTLY OF EXTERNAL ENERGY SOURCES.
HOW THE WAGS VALVE WORKS
The fundamental innovation of the WAGS Valve lies in its purely mechanical operating principle. Unlike electronic leak detection systems that require batteries, electrical power, Wi-Fi connectivity, or software integration, the WAGS Valve functions independently of external energy sources.
1. 2.
The device is installed within a drip pan positioned beneath a water heater.
4. A red indicator tab visibly deploys when
3.
During normal operation, the valve remains inactive. However, if a leak develops and water accumulates within the pan to a predetermined level, a water-sensitive activation component initiates the shut-off sequence.
This action releases a spring-loaded internal piston that immediately closes the incoming cold-water supply to the water heater. On gas-fired systems equipped with the appropriate WAGS model, the valve also interrupts the gas supply, enhancing overall safety.
activation occurs, providing a clear signal that the valve has operated and the water heater system requires inspection and service.
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