Widget’s Way featuring Patti “Widget”

There are so many moving parts to managing an investment property. One of the more challenging items to address when creating your rental agreement is trying to figure out what the amount of the late fee should be. The reason for a late fee is not to make money. The reason for a late fee is a deterrent from paying the rent late.

There is no state law that specifically addresses late fees, and courts vary in their rulings on late fees.  Take note that a late fee cannot be charged unless it is established and executed in a written rental agreement.  So if you have an oral rental agreement you can’t collect a late fee.

The industry standard for late fees seems to be 10% of the monthly rent.  The Department of Fair Housing states that 6% of the monthly rent is the best practice. I am going to guess that everyone in this industry you ask will give you a different answer.

I know that I am not giving you a rock solid answer either and that is because there is not one.  I can share with you that more recently courts in the Los Angeles rent control areas late rent fees are being challenged in an unlawful detainer trial. Stating there is no merit to the fee and it is gouging the resident. Landlords can be asked to prove the actual expense incurred by the owner associated with the fee.  So if your rent is $2500.00 a month and your late fee is 10 % or  $250.00 and the late fee on your mortgage is $35.00 how do you explain the $215.00 charge to the tenant?

When setting your late try to remember that this is a deterrent from paying the rent late. So you don’t want to make it to low, you need to figure out the balance so that it does the job. You also don’t want a daily rental late fee that’s just a recipe for disaster, make it a set fee that applies on a certain date and avoid all the unnecessary calculations. There is too much room for a human error using a daily late fee amount.

When you are attempting to collect the late or need to enforce payment of a late fee it does have a process and procedure.  A three day curable breach of covenant or aka three day notice to perform covenant or quit (they are the same document) is the correct notice to use to address this issue.  You would reference the paragraph of the rental agreement that defines the rules regarding the late fee and then reference the time period for which the late fee is owed and the total of those fees in the event we are asking for multiple months of late fees.

You cannot put late fees on a three day notice to pay rent or quit.  That type of notice is for rent only and if you put late fees on that notice it voids the notice and makes your eviction case invalid. So please don’t do that! Even if your rental agreement states that all past due balances become rent, you should not put late fees on a 3 day notice to pay rent or quit for residential dwellings. It can completely destroy a court case.

The three day curable breach of covenant is the same notice that you use for a violation of the written rental agreement, unauthorized occupants, unauthorized modifications to the property, unauthorized pets etc.

In the event that the tenant doesn’t comply with the notice after the three days are up then contact your legal counsel for the further direction.  Your attorney may say to start an eviction or advise you to serve a second time to show the court you even asked twice. Again the next step is up to your attorney.

Patti “Widget” is the marketing director for Fast Evict.com Law Group. She has 22 years’ experience as a regional property manager. Patti teaches several training classes, and has published articles for various apartment associations.

by Jamie Sternberg, Esq.

Kimball, Tirey & St. John LLP

May 2019

Recent changes to Proposition 65’s safe harbor warning guidelines may impact residential landlords.

• Effective July 1, 2019, new Sections 25607.34 and 25607.35 will become effective. They require Proposition 65 warnings be provided to new tenants and other adult occupants (and again each year during the tenancy). The warnings must be in a specific format (which is new) and delivered in specific ways.
• Additionally, effective August 30, 2018, new warning signs were required to be posted in:
  • enclosed parking facilities; and
  • designated smoking areas.

California residential landlords should discontinue Prop. 65 signage and/or lease language that they previously utilized, and instead follow the safe harbor warnings specified in the new safe harbor warning guidelines.

Background

California requires businesses with ten or more employees to warn employees and the public regarding potential exposures to chemicals known to cause cancer, birth defects, or other reproductive harm. The California Office of Environmental Health Hazard Assessment (OEHHA) maintains and updates a list of chemicals requiring warnings. There are hundreds of chemicals on the list, available at https://oehha.ca.gov/proposition-65/proposition-65-list. Some of the Prop. 65 chemicals are contained in items common in residential buildings, such as automotive exhaust, building materials, fireplaces, tobacco smoke, and vinyl miniblinds manufactured before 1997.

Violating businesses can be fined up to $2,500 per day per violation.

Additional Resources:

• Notice of Amendment to Article 6, Clear and Reasonable Warnings Residential Rental Property Exposure Warnings
•  Initial Statement of Reasons, Amendments to Article 6, New Sections 25607.34 and 25607.35
• Final Statement of Reasons, Amendments to Article 6, New Sections 25607.34 and 25607.35
  
  

 Any questions may be directed to Jamie Sternberg at (619) 744-0863 or jamie.sternberg@kts-law.com.

Kimball, Tirey & St. John LLP is a full service real estate law firm representing residential and commercial property owners and managers. This article is for general information purposes only. While KTS provides clients with information on legislative changes, our courtesy notifications are not meant to be exhaustive and do not take the place of legislative services or membership in trade associations. Our legal alerts are provided on selected topics and should not be relied upon as a complete report of all new changes of local, state, and federal laws affecting property owners and managers. Laws may have changed since this article was published.  Before acting, be sure to receive legal advice from our office. For contact information, please visit our website:  www.kts-law.com.  For past Legal Alerts, Questions & Answers and Legal Articles, please consult the resource section of our website.

                                                       © 2019 Kimball, Tirey and St. John LLP

By Daniel Bornstein, Esq.

Bornstein Law warned the rental property industry that the defeat of Costa-Hawkins repeal would by no means deflate resilient tenant advocates who would surely bring their agenda to local municipalities, and if statewide rent control was too ambitious, owner rights would be chipped away in piecemeal, as if watching a candle slowly melt away.

By all accounts, our predictions have come to pass, but this agenda has now taken a turn by an inventive movement to unionize tenants, and this perversion of labor law is gaining steam in California’s statehouse.

In an earlier article that surveyed many proposals by tenant advocates that are advancing under the dome of the Capitol, we chimed in on SB 529, dubbed the “Tenant associations: eviction for cause: withholding payment of rent.” This measure would allow tenants to withhold rent payments in protest when rent hikes exceed the rate of inflation.

The bill’s author, Sen. Maria Elena Durazo (D-Los Angeles) says that rent increases qualifies as a “grievance” to go on a rent strike with impunity. In essence, the legislation would insulate protesting tenants from eviction, so long as the nonpayment of rent is part of a peaceful assembly.

Sen. Durazo is well versed in labor law, with deep experience in union work that propelled her to a senior role with the Los Angeles County Federation of Labor, AFL-CIO. Her distinguished service on the National AFL-CIO Executive Council should be recognized.

During the Labor Day holiday weekend, Bornstein Law has made it a longtime tradition on social media to pay homage to labor leaders who have advocated for safety and the fair treatment of workers, so we, for one, applaud the progress made in the storied history of organized labor.

What leaves us scratching our heads in the abstract is how hard-fought protections of workers can be extended in any stretch of the imagination to the unionization of tenants who have entered into a rental agreement. Even more disturbing, though, is the prospect of a landlord losing rental income in a process whereby tenants can simply come together in a smoke-filled room and allege a grievance or complaint without any due process or requirement that deferred rent is actually owed to a landlord’s breach of the rental agreement or violation of the law.

SB 529 would create a hardship for rental property owners not based on the merits of the dispute or the transgressions of the landlord, but on the ability for disgruntled tenants to form a mob to level grievances about the owner, however unfounded or undebated, and take the law into their own hands to deny rent.

One of our followers astutely noted that rental housing providers cannot protest their mortgage, another poses the question of why developers would build more housing if the measure is passed, and yet another observer likened the proposal to thievery.

Undoubtedly, there are some actual wrongs that can be righted based on legitimate grievances, and we have said in many venues that while there are always some bad apples, we operate on the working presumption there are good landlords and bad landlords and in like fashion, there are good tenants and bad tenants.

Yet, there are already mechanisms in place to arbitrate who are good or bad actors, in a more thoughtful, deliberate process. Tenants have the prerogative under state law to withhold rent so long as they follow the procedures in Civil Code 1942. Tenants have the unfettered right to form an association without any restriction from the state. Tenants certainly have many venues to air out grievances to housing situations, whether by seeking help from housing departments, a phalanx of housing inspectors, mediation programs, rent boards, or the courts, as the California Apartment Association has pointed out in this letter opposing the bill.

This requirement will lead to significantly higher rents and put good tenants in danger by making it extremely difficult to remove bad tenants who are engaged in illegal and nuisance activity.

~ CAA

We are encouraged that the latest iteration of legislation to institute statewide rent control has stalled, but as we said in our introduction, there will be more insidious means to advance the tenants’ rights agenda, and SB 529 is a case in point.

Tenants have no right to vote among themselves to withhold rent based on an alleged and undefined grievance they have with the landlord, and we trust that no such misplaced right is afforded with new laws. Just as with labor laws that protect not just workers but employers as well, landlords should have some protections in a balancing act.

There are many layers of safeguards for tenants, and we should trust that these institutions will correct any grievances. Let the system work without holding rent hostage.

More than a practitioner in landlord-tenant law, Daniel Bornstein is the Broker of Record for Bay Property Group, a property management company that protects and optimizes the investments of landlords. He is also renowned for his educational seminars and is called upon as an expert witness in complex real estate litigation matters. To avoid or resolve friction within rental units and cauterize risk, Daniel is happy to dispense informed advice to owners, property managers, and other real estate professionals looking to survive and thrive in today’s challenging and litigious rental housing market. Call 415-409-7611 or email daniel@bornstein.law. ​

For additional insights and legal news germane to Bay Area rental housing providers, subscribe to our email list or follow us on Facebook.

American Red Cross Los Angeles Region redcross.org/la Contact: Marium Mohiuddin Telephone: (310) 775-5288 marium.mohiuddin@redcross.org FOR MEDIA ONLY

LOS ANGELES, May 23, 2019 — With Memorial Day just around the corner, it is just about time to light up the grill, pack up the family van and take advantage of another sunny California summer. To make sure that everyone gets to enjoy a worry-free season, the American Red Cross has some safety tips to keep you going all summer long.

WATER SAFETY

Before going in, on or around the water, every family member should become “water smart.” This starts with learning to be safe, making good choices and achieving basic water competency skills. Everyone should be able to enter the water, get a breath, stay afloat, change position, swim a distance and then get out of the water safely. A variety of water safety courses and resources are available at redcross.org/watersafety.

1. Prevent unsupervised access to water. Fence pools and spas with adequate barriers, keep a constant eye for any water dangers such as portable splash pools/slides, buckets and bathtubs.
2. Adults should actively supervise children and stay within arm’s reach of young children and new swimmers. Kids need to follow the rules.
3. Always wear a U.S. Coast Guard-approved life jacket when on a boat and if in a situation beyond someone’s skill level.
4. Swim as a pair near a lifeguard’s chair – everyone, including experienced swimmers, should swim with a buddy in areas protected by lifeguards. Designate a ‘Water Watcher’ to keep a close eye and constant attention on children and weaker swimmers in and around the water until the next Water Watcher takes over.
5. Download the Red Cross Swim App for kid-friendly games and activities and water safety information for parents and caregivers of young people learning how to swim. Download the app for free by searching for “American Red Cross” in your app store or at redcross.org/apps.

GRILLING SAFETY A recent Red Cross survey showed three-in-five adults have walked away from a grill while cooking, which is one of the leading causes of grilling fires. Grilling fires cause more than 9,000 home fires on average each year. To avoid this, the Red Cross offers these grilling safety tips:

1. Always supervise a barbecue grill when in use. Don’t add charcoal starter fluid when coals have already been ignited.
2. Never grill indoors – not in the house, camper, tent or any enclosed area.
3. Make sure everyone, including pets, stays away from the grill.
4. Keep the grill out in the open, away from the house, deck, tree branches or anything that could catch fire. 
5. Use the long-handled tools especially made for cooking on the grill to help keep the chef safe.

BE SAFE IN A CROWD 

If summer plans include places where crowds may gather, such as at an amusement park or concert, people can expect to wait in lines and possibly face extra security measures, along with the possibility of getting separated from their group. The Red Cross has safety steps to follow:

1. Have a few different methods to communicate – cell phone, tablet, calling card for a landline phone. Stay with the group – don’t go off alone. All adults should have a cell phone and exchange numbers with the others in the group. Plan where to meet should someone become separated.
2. Find out what is allowed when it comes to items such as coolers, backpacks, etc. to avoid having to throw them away.
3. Dress appropriately and in layers to be ready for any change in the weather. Stay hydrated. Apply sunscreen regularly.
4. Watch the weather and seek shelter if any severe weather warnings are issued. Know where the exits and shelters are.
5. Be on the lookout for suspicious activity and don’t be afraid to report suspicious people or packages.

Accidents and Emergencies Happen

The Red Cross has several resources to help people learn how to treat bee stings, burns and heat emergencies including training courses (redcross.org/takeaclass), a free First Aid App and a First Aid Skill for Amazon Alexa-enabled devices. 

Right now, the Red Cross has a critical shortage of type O blood – the most needed blood type in the hospital. Type O negative is the universal blood type and what emergency room personal reach for in the most serious situations when there is not time to determine a patient’s blood type. Donors are encouraged to schedule a blood donation appointment today by using the Blood Donor App, by visiting RedCrossBlood.org, or calling 1-800-RED CROSS. Individuals can also open the Red Cross Blood skill on an Alexa-enabled device with a selection of prompts such as, “Alexa, open Red Cross Blood Skill” and ask, for example, “Alexa, find a blood drive.”

About the American Red Cross:

The American Red Cross shelters, feeds and provides emotional support to victims of disasters; supplies about 40 percent of the nation’s blood; teaches skills that save lives; provides international humanitarian aid; and supports military members and their families. The Red Cross is a not-for-profit organization that depends on volunteers and the generosity of the American public to perform its mission. For more information, please visit redcross.orgorcruzrojaamericana.org, or visit us on Twitter at @RedCrossLA or@CruzRojaLA.

by Becky Bower

The first quarter of 2019 has been exceptionally busy for legislators drafting acts, bills, and ordinances intended that would have impacts on the rental housing industry. From the increasing congressional popularity of “Just Cause” evictions laws and rent control, to the implementation of a statewide rental registry – take a few moments to update yourself on what’s new and pending in California legislation.

California’s 2019 state legislative session has a projected end date of September 13, 2019. Keep in mind that this state has full-time legislators, allowing the legislature to meet throughout the year after adjourning their regularly scheduled sessions. Most of the state pending bills are still in Committee.

PENDING: “Just Cause” Eviction Bills
AB-1481 and AB-1697

This year, there are two proposed “just cause” eviction bills. While both propose to limit evictions to specific causes (like failure to pay rent or a breach of the lease) and include some “no fault” eviction causes (like demolishing the unit or withdrawing from the rental market), there are a few differences between the two bills. AB 1697 would only apply to tenants residing for a year or more, while AB 1481 would apply to all tenants. AB 1481 also bans the owner’s right to terminate the tenancy to move into the unit if the tenant is 60 years or older unless the tenant grants permission or if the lease provides notice of this tenancy termination option.

PENDING: Keep Californians Housed Act
SB-18

Existing law requires a tenant within a month-to-month lease at the time the rental property is sold in foreclosure to be provided 90 days’ written notice. Tenants within a fixed-term lease (like a 12-month lease) would have right to possession until the end of the lease term, unless in specified circumstances. This existing law expires on December 31, 2019, however, if SB 18 passes, these provisions would stay in effect indefinitely.

SB 18 also has provisions that cater to the administration of grants for rental housing and legal aid for those experiencing homelessness.

PENDING: Tenants Associations Withholding to Pay Rent
SB-529

This bill would give tenants the right to form, join, and participate in activities of a tenant association, subject to any restrictions as may be imposed by law, or to refuse to join/participate with a tenant association. Landlords under this bill would be prohibited from terminating the lease or refusing to renew the lease of a unit occupied by a member of a tenant association. Tenant associations (after a majority vote) can choose to withhold rent payments for up to 30 days in response to grievances or complaints against the property owner. The landlord would then need to meet with the tenant association to try to resolve the issues and provide a written account of any changes planned. If the rental property owner does not comply with these requirements, they would have to waive the rent that has been withheld.

In addition to the eviction protections surrounding a nonpayment of rent during a rent strike, this bill would also create “just cause” eviction protections for members of the tenant association.

PENDING: Rent Control Bills
AB-1482 and AB-36

Surprise, surprise… rent control is back! While AB 1482 does not provide specifics yet, this bill would cap annual rent increases by an unspecified percentage, plus the rate of inflation. It would also not override local, pre-existing rent control laws. Rental property owners would be prohibited from terminating a tenancy to avoid the rent increase cap.

Just like AB 1482, AB 36 is still missing quite a bit of information. As it stands now, this bill would allow local governments to cap rents on single-family rental properties (exempting landlords with one or two units) and on construction that’s at least 10 years old.

On April 10, 2019 Long Beach became the latest city to pass an ordinance that places a rent cap, plus a base relocation charge and “Just Cause” Eviction rules.

PENDING: Extended Notices for Rent Increases
AB-1110

For a month-to-month tenancy, existing law requires that if you increase the rent by 10% or less, the landlord has to provide at least 30 days’ notice. For rent increases of more than 10%, the landlord has to provide an additional 30 days, to a total of 60 days’ notice. AB 1110 would require 90 days’ notice for rent increases of more than 10% but no more than 15%. For increases of more than 15%, landlords would have to provide 120 days’ notice.

PENDING: Statewide Rental Registry
AB-724

If passed, AB 724 would create a rental housing registry for all buildings within California. Information like the name of ownership, the number and size of each unit, and the move-in dates would be required information. Rental property owners who fail to comply would face a fine of $50 per unit.

PENDING: Criminal Records on Rental Applications
AB-53

Similar to “Ban the Box” employment laws, this bill would prohibit the property owner from inquiring about, or requiring the tenant to disclose, any criminal records during the rental application process. After the initial rental application phase, landlords can request a criminal background check. If the owner considers denying an applicant based on their criminal record, they are required to provide the rental applicant a written statement as to the basis of their possible denial within 5 days of receiving the background report. The rental applicant will then have 14 days to provide evidence of record inaccuracy, evidence of rehabilitation, or other factors. The owner would then need to reconsider within a specified time, and if the decision to deny holds, the landlord would need to notify the rental applicant in writing.

If this bill passes, it will be the third “Ban the Box” housing law in place in the U.S., alongside Seattle, WA and Detroit, MI.

PENDING: Allowances for Tenants to Shelter those at Risk of Homelessness
AB-1188

This bill would permit a tenant to temporarily allow a person at risk of homelessness to live with them for up to 12 months, regardless of the lease, without negative repercussions from the property owner. Landlords can adjust the rent payable under the lease as compensation during the time the extra person is staying with the tenants, which terms would need to be agreed upon in writing by both parties. This bill would also permit the landlord to request a background check, however at this time, the bill does not say how or if a property owner would be permitted to deny the additional occupant if the findings within the background check do not meet their written rental standards. Nor does it describe allowable eviction causes (i.e. if the occupying guest breaks the tenant’s pre-existing lease).

PENDING: Requirements for the Homeless Coordinating and Financing Council
SB-333

SB 333 would require the Homeless Coordinating Financing Council to develop and implement a strategic plan for addressing homelessness in California by July 1, 2021.

PENDING: CalWORKs Extensions
AB-960

The California Work Opportunity and Responsibility to Kids (CalWORKs) program provides cash assistance and other benefits to qualified low-income families, which includes homeless assistance benefits to homeless families that have used “all available liquid resources in excess of $100”. This bill would also make a family eligible for temporary homeless assistance if the family’s gross countable income is less than the minimum basic standard of adequate care. It would allow the county to approve of additional days of temporary shelter assistance if necessary to prevent homelessness while the household is transitioning to receive permanent homeless assistance.

PENDING: Mandatory Acceptance of Section 8
SB-329

The Fair Employment and Housing Act currently prohibits housing discrimination based on source of income. While Section 8 housing vouchers do not legally fall into the “source of income” category, this bill would change that. By expanding the definition of “source of income” to include section 8 housing vouchers, it would make it illegal for any property owner to deny a tenancy based on the applicant’s Section 8 enrollment.

PENDING: Housing Development Near Public Transportation
See SB-50

This bill would require cities and counties to create an “equitable communities incentive” for developments who agree to build a residential development near job-rich or transit-rich areas. This would amend the Density Bonus Law.

PENDING: Long Beach’s Tenant Relocation Ordinance
See Media Coverage

On April 3^rd, the Long Beach City Council voted in favor of an ordinance that would place relocation fee policies on rental properties. While the City has not indicated what the timeline is on drafting the ordinance – which would then need to be voted on by the Council for final approval – it’s expected that this ordinance will impact landlords with 4 units or more (except if that building is the owner’s primary residence).

Relocation fees would become applicable if there is a rent increase of 10% or more during a 12-month period. It is also expected that the notice requirement for a no-fault eviction would increase to a minimum of 90 days. Since the ordinance draft is yet to be seen, there are concerns that the City will also include “just cause” eviction policies and a base rent cap in their ordinance. If you have properties in Long Beach, we recommend you contact your city councilmember.

PASSED: Tenant Screening Fee for 2019

The total allowed applicant screening fee has increased by $1.81 since last year. Application processing fees cannot exceed $50.94. This adjustment is made based on the changes to the Consumer Price Index.

PASSED: City of Glendale’s “Right to Lease” Ordinance
See Ordinance Info

This ordinance was revised in February to include relocation fees. Relocation fees apply to pre-1995 buildings with tenants choosing to vacate after a rent increase of over 7%. For buildings with 3-4 units, the fee is 3x the actual rent. For 5 and more units, the fee is 3x the amount of the rent after the rent increase. With tenants with an overall household income equal or less than the median income for Los Angeles County (plus 30% of the AMI), the relocation fee will be based on the length of occupancy. It follows: 3-4 years of occupancy equals 4x the amount of the rent increase, 4-5 years equals 5x the rent increase, and 5+ years equals 6x the rent increase.

This ordinance also requires rental property owners to offer a 1-year lease to rental applicants (which an applicant can reject and enter into a shorter period as agreed upon). Current tenants in good standing are required a 90-day renewal notice that also includes the 1-year lease term. This too can be reduced to a shorter period at the tenant’s request.

PASSED: Inglewood’s Temporary Rent Caps and “Just Cause” Eviction Policy
See Interim Ordinance

In early March, the Inglewood City Council temporarily capped rent increases at 5% for pre-1995 apartments. It also imposed a “just cause” eviction measure. These temporary ordinances should last 45 days (expiring mid-April) but could be renewed by the council for up to a year.

FUTURE: Los Angeles Rent Controlled Housing Gets a 4% Allowable Increase
See City Update

The City of Los Angeles’ annual allowable rent increase for rent controlled housing (properties subject to the Rent Stabilization Ordinance) has increased to 4%. This goes into effect from July 1, 2019 until June 30, 2020.

Becky Bower is the Content Strategist at The CIC Blog. She holds a degree in English, with a focus in creative writing, from CSU Channel Islands. Her biggest weakness is cake and favorite superhero is Batman.

by Nick Schoch

Should you write-off almost anything? Maybe not if you want to refinance your property and get access to your hard-earned equity. Consider that for every $1 reduction in reportable income, you could decrease your potential loan amount by $11-13.

You mean I should pay more in tax? It depends on your appetite for debt. If you want to use debt to lever and maximize your return on equity, then you should hesitate before minimizing your taxable income. While a lower taxable income means a smaller tax bill, it also reduces the apparent cash flow available to support a loan. And let’s not forget that an aggressive tax strategy could expose you to an IRS audit and tax court (even if the likelihood is low).

Consider the lender’s perspective. Let’s consider how your tax minimization strategy affects how a lender sees you and your property. In this discussion, I will call the write-offs associated with a tax minimization strategy “discretionary expenses.” Lenders will determine the maximum loan that your property can support based on the smaller of two loan sizing approaches: 1. maximum loan-to-value (LTV) and 2. minimum debt service coverage (DSCR).

Approach 1: maximum loan-to-value. Most conventional financing sources will lend up to 70-75% of your property’s appraised as-is value. The good news is that reducing your Net Operating Income with discretionary expenses will most likely not affect your appraised value. This is because the appraiser will value the property based on how the average market investor would look at your property. Most investors would recognize the nature of your discretionary expenses and remove them from the income capitalization analysis. Thus, discretionary deductions will likely not affect loan amount determined by the LTV approach.

Approach 2: minimum debt service coverage. Most lenders require a minimum debt coverage ratio between 1.20x and 1.25x. This means that your underwritable NOI must be at least 20-25% greater than the debt service associated with the proposed loan. Unlike the average investor, lenders will not add back discretionary deductions to your NOI. Instead, most lenders will look at the last three-years of operating statements (profit and loss statements) to evaluate whether the expenses are recurring. If you’ve been managing your tax liability for the last year, you might be able to convince the lender that your discretionary expenses are non-recurring, and the lender may credit your NOI accordingly. However, if you’ve been aggressively managing your tax liability for longer than a few years, your discretionary expenses will appear recurring, and the lender will most likely treat the expense as legitimate. Even if your operating statements aren’t consistent with your tax returns, some lenders rely on your tax returns instead of your operating statements. This makes it even harder to credit your underwritable NOI. Thus, discretionary expenses will probably affect the cash flow constraint and cause you to get a smaller loan.

The table below shows how the math in approach 2 works with an example that assumes an additional 10% in discretionary operating expenses.

Op. Exp. Ratio	30%	40%
Discretionary Expenses		-$27,360
NOI	$191,520	$164,160
Interest Rate	5.000%	5.000%
Amortization	30 years	30 years
Constant	6.442%	6.442%
Min. DSCR	1.20x	1.20x
Min. Debt Yield	7.7%	7.7%
Max. Loan	$2,477,546	$2,123,610
Decrease in Max. Loan		-$353,935
Loan $ Lost per $1 of Expense		$12.94

As mentioned above, you lose about $13 for every $1 of additional expense.

A bigger risk. In addition to getting a smaller loan than you deserve, the lender may consider your tax return fraudulent. The IRS awards whistleblowers up to 30% of the collected amounts from tax cheats. This is a strong incentive that may encourage a loan processor or credit analyst to report a potential borrower with aggressive tax minimization strategies. That being said, I have yet to meet a lender with a policy of reporting potential borrowers they believe to be tax cheats. Instead, lenders will generally decline the loan because of questionable character or offer the borrower a lower loan amount that their tax-managed NOI can support. Nonetheless, I would be hesitant to present a client’s request to a Federally regulated institution if that client’s financials suggested overt tax fraud.

So what’s an apartment owner to do? The IRS tells owners that business expenses must be “ordinary and necessary.” Creative property owners can stretch this flexible guidance to minimize their taxable income. But how far do you stretch this guidance? Most lenders will underwrite property cash flow assuming expenses are at least 30% of gross income with no upward limit. If you manage your expenses between 30-50% of gross rental income, you won’t raise any eyebrows at first glance and you will ensure the property can support the appropriate loan amount.

I will end with the necessary and trite disclaimer: consult with your tax advisor before implementing a tax minimization strategy but I hope reading this article helps you keep in mind the potential effect it will have on your ability to draw on your hard-earned equity.

By Elaine Simpson

Typical emergency situations, in property management lingo, cover “fire, flood or blood”.  Take a look at the headlines this month and most of our country has suffered from some type of disaster or emergency situation: wildfires, hurricane caused high winds and flooding, earthquakes, tornadoes, bomb threats, renegade shooters, and the list goes on.  One of the duties of a property management company and its staff is to have a contingency plan in case of an emergency situation.

As property managers, what should we do?  We must educate our staff about possible situations and how to respond to them.   We should include sample emergency situations in our policy and procedure manuals and share a list of emergency contacts.

FEMA has leaders and regional offices around the country.  Become familiar with their office closest to you. FEMA stands for the Federal Emergency Management Agency, an agency of the U. S. Department of Homeland Security. Their customer service number is 1 800-621-3362 and their website is https://www.fema.gov.  There is a map of the United States showing which states are in which regions that can be accessed by visiting https://www.fema.gov/regional-contact-information.  This site also gives one access to flood maps. For the addresses and telephone numbers of the Emergency Management Agencies by state, visit https://www.fema.gov/emergency-management-agencies.  The National Emergency Training Center is a subsidiary of FEMA. They teach courses on how to minimize the impact of disasters and emergencies.

Other “readiness resources” to have on your list should include:

Power outage – names and numbers for local electric supply companies;

Road closures – state Department of Transportation;

Water – city or private water providers for sewer-related emergencies such as broken water mains, fire hydrant, or water service line or sewer backups;

Cable, Phone, Internet Service – list local companies with phone numbers and websites;

Gas – local companies with numbers and websites;

Public Safety – 911 and non-emergency numbers for police and fire departments;

American Red Cross – http://www.redcross.org/get-help;

Your County Department of Emergency Management;

Your County Department of Public Health;

Your State Department of Emergency & Military Affairs;

You can also download a guide provided by the U. S. Department of Homeland Security at Ready.gov called Protecting Your Family and Your Home, an Emergency Preparedness Guide.

For assistance writing a Policy and Procedure Manual or to find out more about the many and various ways Occupancy Solutions can prepare you for the future with in-person customized training or online e-learning training webinars and property management courses, visit www.occupancysolutions.com today or call 1-800-856-0948 for a free consultation.  Stay safe and be ready.  As one recent campaign touted “Disasters Don’t Plan Ahead…But You Can!”

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Elaine Simpson – Owner, Occupancy Solutions, LLC

Operations, Leasing, Marketing Consultant and Training Specialist

Elaine Simpson has been employed in the housing industry since 1986. Starting on site as a leasing agent, she moved up, working as assistant manager, site manager, executive director and finally senior regional manager with communities in several states and portfolios containing more than 1400 units.  Ms. Simpson has worked for local and national industry leading companies and throughout her career, has trained new managers across the country, assisted in creating “Best Practices” and procedure manuals, participated in numerous task forces during national mergers, acquisitions and dispositions and headed “turn around” teams assigned to troubled communities, successfully increasing income while decreasing expenses and allowing the property to recover economic viability. 

With over 30 years of experience in the multi family industry, Elaine Simpson founded Occupancy Solutions, LLC to provide on site operations, human resources, housing program compliance, maintenance, marketing, leasing, training and consulting services for multifamily professionals of market rate, senior and affordable housing communities throughout the United States.   Occupancy Solutions assists communities by providing proven, cost-effective techniques and strategies that achieve increased occupancy, improve resident retention, minimize expenses and increase net operating income.  

Ms. Simpson is a licensed real estate broker in Michigan and Arizona, a Certified Senior Real Estate Specialist, a member of the National Speakers Associations, a National Apartment Association Education Institute Faculty Member, an Accredited Resident Manager a Certified Assisted Housing Manager and John Maxwell Certified Coach, Trainer and Speaker. Let Occupancy Solutions create solutions for your community. To learn more about the vast range of services and trainings Occupancy Solutions can provide, please visit www.occupancysolutions.com for more information.

By Nate Bernstein, Esq.- Managing Counsel, LA Real Estate Law Group

If a tenant has been evicted by the landlord, and the landlord does a sheriff’s lockout, and the tenant does not remove their personal property (such as clothes, appliances, furniture), it is a big problem and headache for the landlord or manager. The personal property could be heavy furniture or a big screen television or any other personal property such as pictures, clothing, or toiletries.   You can’t rent out the property until the personal property has been removed and the premises has been professionally cleaned, painted, and repaired. You thought you were in the real estate business, but now you are in the furniture storage business!!  Your inclination from your feeling of dire frustration is to have the personal property thrown out into the street or into the neighborhood dumpster.   However, dumping the property in the trash bin is unlawful under California law, and the former tenant can sue you for the value of the property and any other charges incurred.  You don’t want to be in small claims court or any other court over this issue.     

Here is what you do to solve the problem:

Immediately after the lockout date,  serve the tenant by personal service or email a “Notice of Right to Reclaim Abandoned Property” that complies with California law. This can be served personally or by email.  You want to serve this notice as soon as possible because the former tenant may stall and delay to pick up the personal property- so you want to start the clock ticking on the notice!! This starts the clock of 18 days for the tenant to pick up personal property. You should give the former tenant post lock out access to the property only if he or she shows you a bona fide contract from a moving company with a move out date, and you are present to supervise the process.  Don’t give the locked out tenant any other form of access, and don’t provide a key!!

The Notice of Right to Reclaim Abandoned Property should describe in detail what items/categories were left in the property by the former tenant, all of the names of the former tenants, the property address, and should state, “If you fail to claim this property by (state date and time), and unless you pay the landlord’s reasonable cost of storage for all the above property, and take possession of the property which you claim, not later than 18 days after notice is deposited in email, this property may be disposed of pursuant to California Civil Code Section 1988. Pursuant to Cal. Civil Code Section 1984(b)(1): If you fail to reclaim the property, it will be sold at a public sale after notice of the sale has been given by publication. You have the right to bid on the property at this sale. After the property is sold and the cost of storage, advertising, and sale is deducted, the remaining money will be paid over to the county. You may claim the remaining money at any time within one year after the county receives the money.”

The Notice of Right to Reclaim Abandoned Property must notify the former tenant that he or she is being charged daily storage costs for the time that the personal property is being stored after the judgment for possession was entered by the Court. The amount of storage costs should arguably be “reasonable,” and probably should not exceed the amount of the monthly rent. The amount of monthly rent should be the maximum ceiling amount you should charge, but you need to use reasonable business judgment on this issue. If you want to be fair to the prior tenant, you can call some storage companies in your neighborhood to obtain an estimated a price point, and charge a similar daily rate for the comparable amount of personal property. You should be flexible with this requirement because your goal is to persuade the tenant to move his personal property, not profit from the tenant’s holdover. If a tenant is in financial dire straits, perhaps all he or she can afford is the cost of the moving company. If the former tenant is willing to hire movers to move out his or her items and actually pay for professional movers, you should let the tenant do so, and do so immediately. The storage cost factor is secondary. You want the personal property removed as soon as possible so you can clean the property, complete maintenance and repairs to prepare the property for re-rental.

If the stubborn former tenant does not pick up the personal property within 18 days of serving the notice, then you need to publish a notice of public auction sale twice in a local newspaper for the next two weeks. I would give the tenant copies of the notice of these publication. By the end of publication they will have been noticed three times in writing to pick up their property – the former tenant cannot claim with a straight fact he or she did not receive notice of a future auction. If after the two weeks of publication the tenant still does not pick up the property, then you can discard, sell, donate, or use the property, or gift it.      

The author of this article, Nate Bernstein, Esq., is the Managing Counsel of LA Real Estate Law Group, and a member of the State Bar of California and his practice concentrates in the areas of complex real estate litigation, commercial litigation, employment law, and bankruptcy/creditor’s rights matters. The contact number is (818) 383-5759, and email is natebernstein44@gmail.com. Nate Bernstein is a 25 year veteran Los Angeles real estate and business attorney and trial lawyer. Mr. Bernstein also has expertise on bankruptcy law, the federal bankruptcy court system, creditor’s rights and debtor’s bankruptcy options. He previously served as Vice President and In House trial counsel at Fidelity Title Insurance Company, a Fortune 500 company, and in house counsel at Denley Investment Management Company. Nate Bernstein created www.laquiettitleattorney.com, a leading educational resource on quiet title real estate litigation.     Nate Bernstein is a local expert on real estate law and economic trends in the real estate and leasing market, business law, and bankruptcy law. Nate has personally litigated more than 40 major real estate trials, and has settled more than 200 complex real estate and business cases.  

by Kari Negri

There is no denying that investing in a real estate isn’t as easy as it seems.  If you have just stepped into the business, it can take loads of time and money.  Running a prosperous real estate business involves a lot of hassle and stress, especially if you’re managing it without knowing  all the laws and issues that can arise in owning an apartment building.  A Fair Housing class at The Apartment Association of Greater Los Angeles (AAGLA) is probably a good start.

Thanks to magazines like Apartment News Publications, Inc.  you can keep up on current issues within our industry which is also essential and if you do not have time to do all of this you need to consider your options carefully.   Doing it yourself could be a disaster but also hiring the wrong company or someone without good credentials can be just as bad.

Unfortunately, a lot of property owners avoid hiring great property management companies like SKY Properties, Inc. due to misconceptions like it is too expensive or these providers can’t preserve their property. There is a large percentage of people who conflate myths with facts, depicting an inaccurate picture of property management services. If you have been hearing these stories for a long time, it is the right time to clear the mist and debunk the myths related to property management services.

 Here we’ve rounded up seven most common myths to help you ease your mind.

Property Management Myths to Debunk  

1. You Don’t Need To Hire Property Management Companies

Let’s begin with the most common one where most investors believe that handling management and ownership of rental properties is a breeze. According to them, they can handle maintenance and repairs to take full advantage of their investment.

However, to handling contractors, maintenance requirements, repairs and legal matters are going to take a heavy toll on you. It is better to hire the services of a reputable property management company to eliminate hassle and stress from your life.  Often they can save you more money than you spend on their fee.   You have to really know what you are doing to effectively manage rental property.  I say that because I am often hired after there is a disaster that could have been avoided completely. 

2. Property Management Service Is Expensive

 It is another common myth that prevents property owners from hiring property management services. However, any good property management company will rent your vacancies faster and know all the sources to do that which are often free or very inexpensive.   Their job is also to reduce expenses and because they often buy things in bulk and work with vendors that have the proper license and insurance can do more quickly and efficiently.  

3. They Can’t Preserve My Property

The feeling is natural when it comes to taking care of your property. However, a professional property manager cares about your building and knows it a valuable asset. They know how to keep it in great condition at the lowest cost to attain the best market price.

4. Renters Can Damage My Property

 Property managers are well-aware of your concerns when it comes to the safety of your property. That is why they make sure to rent your property to the best possible tenants and keep monitoring the property to prevent any damages.  The best thing you can do for your property is to put in the right people.  If you do not do this from the beginning one bad tenant can affect the income of your entire investment.   SKY has a tried and true method to put in the best possible people.

5. Property Manager Will not Listen to me and Control Everything

 A good property manager will listen to a building owner and put into action a plan that is in sync with what you want out of your investment.  The control will always be yours.  

Final Thoughts

Myths Debunked.  Now it’s the right time to hire a reputable property management company or take the necessary steps that includes knowing all the laws in regards to managing an Apartment Building in Los Angeles which is not easy.  Taking the right classes to educate yourself – you may want to do this regardless and last to keep reading Apartment News Publications, Inc. to stay on top of current issues.  The easiest thing to do however is likely to just hire the right company to begin with and stay out of trouble with code enforcement or legal matters.

Although I am not an attorney, I am a very qualified property management company with 26 years of experience so if you have questions, you can always email me and “ask SKY” at Kari@SKYprop.LA.

by Joani Weir and the Better Housing for Long Beach Team

BREAKING NEWS!

City Council Meeting

On April 2^nd, 2019, the City Council of Long Beach voted to push through an ordinance for rent control. The city council deafened their ears to the vote of the people.  

The mayor and council members have voted to place a rent cap plus a base relocation charge and Just Cause Eviction AKA  Rent Control into Long Beach.   BUT do not be fooled into thinking there will not be great costs to the  renter as well as the small property owner.  We all know these new mandates will come with more inspections, fees, city administration fees etc….  Though council and city staff are going to control the rents of housing providers, they are not going to cap the fees charged to renters and housing providers.  They will not cap the bonuses and high pensions they pay themselves.  Bad policies like this is what puts property owners out of business, thus renters lose their housing.     

Council members are sending emails to their constituents denying that they voted on rent control.  Ask your council member what is the difference from their “tenant protections” and what is understood as “rent control”.  Is there a rent increase cap?  Yes.  Will you be forced to pay someone to leave who is a problem tenant?  Yes. Tenants will see it much harder to get their landlords to boot out a neighbor who is a nuisance or even one who is a criminal.  Will the cost of housing increase?  Yes. When vacancies occur, housing providers will be forced to push the rent as high as possible to make up for the the lost rental income.  This will cause less affordable housing in Long Beach.  Do not be fooled by their sly interpretation. 

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Not all city council members were in support of the new ordinance for rent control. We thank Councilwoman Suzie Price, Councilwoman Stacy Mungo, and Councilman Daryl Supernaw for siding with the people against rent control.  There is still hope for Long Beach! We encourage you to thank them for their stance on this issue. 

We would also like to express a very special thank you to all who were in attendance for this specific council meeting! We estimate that we had at least 300 people in attendance from our side! The overflow of property owners and knowledgeable renters displayed our stance on rent control to the council.

The power of conversation must be greatly exhibited within these next couple of months. We have seen many people from the opposition flip over to our side just by the use of one single conversation! Get the word out! Share the facts.  There is power in truth! 

Keep Pressing On!

Let us not grow weary! We have two months to push back against the council before it is codified. We need your help! Again, let your voice be heard to the mayor and council members.  Remind them the majority of the citizens voted down Proposition 10 and signed thousands of petitions against rent control.  It is not time to silently lose your home and livelihood.  

Join us in showing our disapproval with the council’s decision by:

(1) calling or emailing all city council members.
(2) getting the word out among the people in your sphere of influence (wear your BH4LB hats!)
(3) supporting Better Housing for Long Beach by donating to keep us in the fight and
(4)Do not donate or support any council member or the mayor if they support rent control. 

Please immediately call and email Mayor Garcia and all council members and tell them to oppose all forms of rent control aka “tenant protections” and please ask them to stop the attack on small housing providers and renters in Long Beach.

MAYOR ROBERT GARCIA
333 West Ocean Blvd, 14th Floor
Long Beach, California 90802
Mayor@longbeach.gov T (562) 570-6801 F (562) 570-6538 
 
Council Members by District:

1st District-Councilwoman	Lena Gonzalez Email: district1@longbeach.gov Phone: (562) 570-6919
2nd District-Councilmember	Jeannine Pearce Email: district2@longbeach.gov Phone: (562) 570-2222
3rd District-Councilwoman	Suzie Price Email: district3@longbeach.gov Phone: (562) 570-6300
4th District-Councilman	Daryl Supernaw Email: district4@longbeach.gov Phone: (562) 570-4444
5th District-Councilwoman	Stacy Mungo Email: district5@longbeach.gov Phone: (562) 570-5555
6th District-Councilman	Dee Andrews Email: district6@longbeach.gov Phone: (562) 570-6816
7th District-Councilman	Roberto Uranga Email: district7@longbeach.gov Phone: (562) 570-7777
8th District-Councilman	Al Austin Email: district8@longbeach.gov Phone: (562) 570-6685
9th District-Councilman	Rex Richardson Email: district9@longbeach.gov Phone: (562) 570-6137

Words cannot express the appreciation that our team feels for your continued support in this fight! We are making our mark in history that will affect generations to come! If you have any questions, please do not hesitate to contact us at (562) 786-985

Fighting for You,
Joani Weir
and the Better Housing for Long Beach Team

P.S. Please donate to Better Housing for Long Beach so we can continue to fight against Rent Control. We are in this together!

http://www.betterhousingforlongbeach.com/