Delaware Statutory Trust Tax Treatment, Taxation and Tax Returns: DST 1031 Exchange Market Insights and Thoughts

Written by Apartment Management Magazine on . Posted in Blog

By Dwight Kay

When considering a Delaware Statutory Trust property for a 1031 exchange, investors and their CPAs must also consider the tax treatment of DST properties. This article gives a brief overview of the various Delaware Statutory Trust tax treatment and DST taxation topics that investors should understand and go over with their CPA and tax attorney prior to making any investment decisions.

Treatment as “Like Kind” for the Purposes of a 1031 Exchange The IRS under Revenue Ruling 2004-86 blessed the Delaware Statutory Trust (DST) as “Like Kind” exchange property for the purposes of a 1031 exchange. 

Delaware Statutory Trust Tax Return –  Year End Accounting and Reporting

When an investor purchases an interest in a DST 1031 exchange property, they will receive a year-end operating statement that shows their pro-rata portion of the properties rental income and expenses. They will then provide this to their CPA who will plug the numbers into Schedule E on the investor’s tax return, just like all other rental and commercial property the investor owns. If you would like to see an example of the year end reporting provided by various DST sponsors please email us atinfo@kpi1031. com or call Kay Properties directly at 1(855) 466-5927.

Depreciation Deductions and DST Taxation

With a 1031 exchange, an investor’s basis from the property he or she recently sold will carry forward with them into the new DST properties that they purchase. If the investor fully depreciated the property they sold already, that basis carries forward into the new DST properties. If they still had basis in the property they sold, or if they purchased a greater value in the DST properties than they had in the property they sold, then they now are able to take advantage of depreciation deductions to help shelter the income from the DST properties.

Delaware Statutory Trust State Tax Treatment 

When owning property out of state, you typically will need to file state income tax returns in that state. The same goes for DST properties unless the property is in a state with no income tax filing requirements, such as Texas or Florida. Typically CPAs will charge clients a few hundred-dollar fee for filing out of state on behalf of a DST investor.

Future 1031 Exchanges – Tax Treatment of Delaware Statutory Trust Properties in Future 1031 Exchanges

When an investor purchases a DST property and that DST property eventually sells, the investor is now free to purchase any other type of like kind real estate. Many of our investors end up 1031 exchanging back into more DST properties when it is time to reinvest.

Purchasing Equal of Greater Value – DST Property Taxation Regarding 1031 Exchange Rules

One of the 1031 exchange rules require investors to purchase property of equal or greater value. There-fore, it is recommended that investors who have paid off their properties in full invest in DST properties that are all-cash/debt-free. This is recommended for two reasons; first using leverage/loans in any real estate purchase or investment greatly increases the risk of loss. Second, if an investor that has $1 million of equity from a building he sold free and clear purchases a DST that has a 50% loan to value, then that investor is now purchasing $2 million of that DST ($1 million of equity down plus the $1 million of debt due to the property being a 50% LTV equals a total purchase price of $2 million). When the DST property sells, that investor will have to purchase equal or greater value per the IRS 1031 exchange rules and the investor now is stuck with having to continue to take on debt to have a fully tax deferred exchange. That investor no longer has the luxury of staying debt free like he was before he exchanged into the DST property in the first place. Many clients that are at or near retirement have already paid off their properties in full and taking on more debt is not wise, especially considering the 1031 exchange rules.

At Kay Properties, we have been involved in billions of dollars of DST 1031 exchange properties and have worked with hundreds of investors, DST sponsor companies, CPAs and tax attorneys throughout the country. It is important to note that Kay Properties is unable to provide you with any tax or legal advice so please do speak with your CPA and attorney prior to making any investment decisions.

If you or your CPA have any questions regarding DST properties taxation, tax treatment or how they work with your tax return feel free to email us at info@kpi1031.com, register on our website at www. kpi1031.com or call us at 1(855)466-5927.

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There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) properties and real estate securities including illiquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed. For an investor to qualify for any type of investment, there are both financial requirements and suitability requirements that must match specific objectives, goals and risk tolerances.

Diversification does not guarantee returns and does not protect against loss. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please be aware that this material cannot and does not replace the Memorandum and is qualified in its entirety by the Memorandum.

This material is not intended as tax or legal advice so please do speak with your attorney and CPA prior to considering an investment. This material contains information that has been obtained from sources believed to be reliable. However, Kay Properties and Investments, LLC, WealthForge Securities, LLC and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment. There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) and 1031 Exchange properties. These include, but are not limited to, tenant vacancies, declining market values, potential loss of entire investment principal.

Past performance is not a guarantee of future results: potential cash flow, potential returns, and potential appreciation are not guaranteed in any way and adverse tax consequences can take effect. Real estate is typically an illiquid investment. Please read carefully the Memorandum and/or investment prospectus in its entirety before making an investment decision. Please pay careful attention to the “Risk” section of the PPM/Prospectus. All photos are representative of the types of properties that Kay Properties has worked with in the past. Investors will not be purchasing an interest in any of the properties depicted unless otherwise noted.

IRC Section 1031, IRC Section 1033, and IRC Section 721 are complex tax codes; therefore, you should consult your tax and legal professional for details regarding your situation. Securities offered through registered representatives of WealthForge Securities, LLC, Member FINRA / SIPC. Kay Properties and Investments, LLC and WealthForge Securities, LLC are separate entities.

DST 1031 properties are only available to accredited investors (generally described as having a net worth of over one million dollars exclusive of primary residence) and accredited entities only (generally described as an entity owned entirely by accredited individuals and/or an entity with gross assets of greater than five million dollars). If you are unsure if you are an accredited investor and/or an accredited entity, please verify with your CPA and Attorney prior to considering an investment. You may be required to verify your status as an accredited investor.


“Property Owner – Beware!”

Written by Apartment Management Magazine on . Posted in Blog

“Property Owner – Beware!” Local Structural Engineers play the bait and switch with clients causing unfair business practices and thousands in over-charging….

I own and manage an apartment building in West Hollywood.  On my journey to soft story compliance, I have had the ‘dubious privilege’ of meeting some unscrupulous and outright fraudulent structural engineers – to say the least!  if you’re in the world of retrofitting your property, don’t flip the page until you read this article – get a load of this: 

After months of no communication, lack of response to my inquiries and being kept in the dark, I was finally given a set of ‘approved’ plans along with a quote for construction by the engineering firm I hired to provide plans to LADBS in order to stay within my compliance timeframe.  

Everything sounds fine and dandy right? Well, keep reading! 

The bid I received seemed on the high side based on a similar property my partner owns and was able to complete for substantially less.

While meeting a few different contractors, I received construction bids that were exponentially higher than the bid I received from the original engineer, all of a sudden their price didn’t seem so high anymore, I felt that every other bid I received was so much higher, I’m talking 80% higher, it was almost impossible to imagine hiring anyone else!

Here’s where it gets good! One of the  contractors I met with, Cal Retrofit, pointed out that something ‘smelled fishy’ with the plans I provided them.  They quickly pointed out that the remediation method used was over-engineered, over complicated, and not the normal courses of action taken by a professional engineering firm, who claims to be “soft story specialists”. 

I started to believe what I was hearing and finally shared the price that I received from my engineering firm for the construction phase of the retrofit. 

To my astonishment, I was quickly shown how the price I received was less than the actual cost to other contractors, there was no real chance to compete from the get go!  Something was off!  

Having experience in real estate development, I wanted to do a little investigation of my own to find out how a leading contractor was not able to give me a quote that was remotely comparable to the one I originally received from my engineering firm! 

I took my plans down to The Los Angeles Department of building and safety and sat down with the plan checker that was assigned to my project, when I asked the plan checker to review the remediation method and possibly shed some light on why I was receiving price quotes that varied so much!? He  simply re-iterated that a different set of plans, a much simpler remediation method was submitted as a correction to the plans that were originally submitted which I was out there wasting my time bidding. 

What?  I asked, a different set of plans were submitted? Yes, he answered, though it is common that we receive corrections to original submissions, it is uncommon when a completely different methodology is submitted for the same property by the same engineering firm.

Hmmm?  It took me a few moments to think about it, but it quickly became apparent that I was sent out to fail, I was duped! The firm I hired sent me out to waste time and receive bids for plans that were intentionally over done in order for the bidding process to go in their favor, while ‘quietly’ they submitted completely different, a more current and optimized remediation method that would make the entire construction cost less.  

They had me chasing my own tail, almost believing, that the price they originally gave me was gold!  Come to think of it, you can buy some serious gold with the 34k they were going to overcharge me! 

I don’t know about you, but I call that fraud, unfair business practices, and outright theft, oh, and by the way, I don’t intend to go quietly!  

Based on legal advice, we chose to keep confidential, the name of the establishment that I’m talking about, but I do want to give credit to CalRetrofit for their honesty, integrity, and willingness to prove themselves and stand behind their word!  I ultimately awarded the contract to CalRetrofit.  They were able to completely re-engineer my soft story project, thus saving me thousands in construction costs. Their administrative management team’s communication was a breath of fresh air.   With them, I truly feel I am in good hands.  

Please, fellow property owners, beware of shady engineers trying to take advantage of us!  

West Hollywood Property Owner 


DON’T BE FOOLED BY UNSCRUPULOUS RETROFITTERS! 

With over 24 years of experience, our team of experts in the fields of structural engineering, construction and project management,  offer a unique professional perspective that streamlines every step of the retrofit process. CalRetrofit is highly recommended by our clients, we deliver results, on time and on budget.

San Francisco Trial Court Ruling a Temporary Setback for Prop. 13

Written by Apartment Management Magazine on . Posted in Blog

by Jon Coupal

Recently, a San Francisco judge upheld the validity of a local special tax that failed to secure a two-thirds vote of the city electorate as required both by Proposition 13 (1978) and Proposition 218 (1996), also known as the Right to Vote on Taxes Act. Both initiatives were sponsored by the Howard Jarvis Taxpayers Association. The lawsuit was brought by HJTA and, after the ruling, it immediately filed an appeal.

The harmful consequences of the court’s ruling cannot be understated. Unless reversed on appeal, a gaping new loophole will have been created in the Constitutional protections for taxpayers that voters have repeatedly ratified over the decades. Moreover, the decision is a green light to tax-and-spend interests to extract even more dollars from the most heavily taxed citizens in the United States.

By way of background, in June of 2018, 50.87% of San Francisco voters voted affirmatively for Proposition C, a tax on commercial rents. There is no dispute that the tax, projected to raise $145 million annually, was intended for the specific purposes of providing child care, early education, and salary increases for preschool teachers in the City of San Francisco.

The less than fifty-one percent of the vote doesn’t cut it. Proposition 13, approved by California voters in 1978, requires a two-thirds vote of the electorate to pass a tax increase for any special purpose. This has been the law for 40 years. It has also been the consistent position of interests often hostile to taxpayer rights. The Legislative Analyst’s Office, California League of Cities, and numerous other local governments have agreed that all local special taxes require two-thirds voter consent.

The basis for the court’s strange ruling, unfortunately, had its genesis in an earlier California Supreme Court case in 2017. But that case, California Cannabis Coalition v. City of Upland, had nothing to do with vote thresholds. Rather, it was limited to a narrow technical question: When a local initiative seeks to impose a new tax, does the measure need to be put to the voters at the next general election or can the proponents, relying on other laws, require a special election that happens sooner? The lower court had ruled that taxes proposed by initiative are exempt from the taxpayer protections contained in the state constitution, such as the provision dictating the timing of the election. But Upland never addressed the issue of whether the requirement for a two-thirds vote would not apply if the tax increase was proposed by initiative.

The Supreme Court in Upland reasoned that local voters were different from the governing body when it comes to enacting legislation. But for decades courts have said that when voters use the initiative power they are simply “stepping into the shoes” of the governing body and have the same powers and same limitations. For example, a local city council cannot seize someone’s real property without paying “just compensation.” The reasoning of the court suggests that if local housing advocates propose an initiative to seize someone’s property, there’s no requirement to pay for it. That is surely an absurd result.

Unless reversed on appeal, the ruling of the trial judge in the Measure C case will create a bizarre system whereby different vote thresholds – including no vote at all – will depend on whether a tax was proposed by the local governing body or by the initiative process. Abuses from this system are obvious. Now, when the politicians themselves use the citizens’ initiative process, they can ignore the requirement of two-thirds voter consent.

Another abuse that will surely manifest itself is that public agencies will collude with outside interests to propose taxes in the form of an initiative, then submitt a tax under a lower vote threshold than that currently required. The worst-case scenario would be if a local government were to rely on Upland as legal authority to impose a tax without any election at all.

The legal fight over taxes imposed in violation of the two-thirds vote requirement was predicted by HJTA immediately after the Upland case was decided. The Measure C lawsuit is just one such case. Another Measure C (also from San Francisco, which appeared on the later June ballot), also involves a special tax that failed to achieve a two-thirds vote. That tax is being contested by HJTA and others. And a third case has been filed in Fresno where, once again, HJTA lawyers are defending the two-thirds vote mandate.

The Supreme Court has caused unnecessary confusion with its ruling in Upland that, regrettably, has necessitated several lawsuits being filed to enforce taxpayer rights. Ultimately, the Supreme Court will have to provide clarity, one way or another. And if it is against taxpayers, another statewide measure in the mold of Prop. 13 will surely be on the table.

Jon Coupal is president of the Howard Jarvis Taxpayers Association.

Should I allow vaping in my rental property?

Written by Apartment Management Magazine on . Posted in Blog

By Kathy Adams

You might not allow smoking within your rental units, but what about vaping with e-cigarettes?

About 15 percent of adults under 40 vape, so you might want to allow vaping in your rental property to attract more tenants. But you should learn all you can about e-cigarettes before you do.

Like regular cigarettes and cigars, e-cigarette emissions leave behind a residue that could build up on the walls and floors over time. Even if you decide to allow vaping indoors, it’s worth considering the extra cleanup work that could result when that vaping tenant moves out. So even if your state permits vaping in many public areas, you might want to restrict their use within your rental units.

Cigarettes versus e-cigarettes: the vapors

E-cigarettes: The vapors emitted from an e-cigarette contain far less nicotine than the smoke blown from a regular cigarette.

Cigarettes: Cigarettes leave behind a nicotine-stained film that discolors everything from walls to furniture. And then there’s that stale cigarette stench that’s notoriously hard to remove from a chain-smoker’s home.

Related: How to Remove Cigarette Odor From Your Rental Property

E-cigarettes: The vapors emitted from an e-cigarette contain just a fraction of the amount of nicotine found in cigarette smoke.

Cigarettes: Cigarette smoke contains a laundry list of harmful chemicals such as lead, arsenic, and formaldehyde.

E-cigarettes: Vapors in e-cigarettes typically contain less harmful chemicals, although they’re still packed full of chemicals.

The main difference, when it comes to residue left behind from smoke or vapor, is that cigarette-smoke residue builds up faster and reeks. It’s also visibly noticeable, since nicotine discolors some surfaces.

Even though vaping doesn’t cause nicotine stains, the vapor still creates a messy buildup. One substance in the vapor is vegetable glycerin, which leaves behind an oily residue. Oils attract dust and small particles, so a home exposed to frequent vaping ends up with a dirty, greasy buildup.

Cleaning concerns

Cleaning up after a smoker typically involves steam-cleaning carpets and curtains, washing  non-porous surfaces thoroughly, and repainting the walls. Removing odors could be extremely difficult, depending upon the amount of smoking done indoors.

Cleaning up vaping residue means deep-cleaning carpets, fabrics, and upholstery; washing non-porous surfaces with equal parts water and vinegar; and potentially repainting walls after wiping them down with the vinegar solution. All surfaces could be harder to clean than similar surfaces in a nonsmoker’s unit, thanks to the oily vaping residue.

What about the law?

As is the case with traditional cigarettes, the laws regulating e-cigarettes vary greatly from one region to another.

San Francisco, for instance, bans use of e-cigs wherever traditional cigarettes are banned.

Minneapolis lawmakers, however, believe e-cigarettes do not violate clean-air laws. In Minnesota, landlords decide whether tenants can smoke cigarettes or e-cigs within their units and on-site outdoor spaces. State law prohibits smoking and vaping in common indoor areas of rental properties, however.

Read up on your state’s laws to determine if there’s already a law regulating e-cigarettes and whether that applies to rental housing. If you choose to ban  e-cigarettes and similar electronic vaping products, clearly state this in your rental agreement. Define what forms of smoking and vaping you prohibit. Note any areas where vaping is allowed, such as outdoor spaces far away from rental units. Also clarify any bans on vaping in common indoor and outdoor areas.

Fire hazard is real

Vaping doesn’t carry the same fire hazard as falling asleep with a lit cigarette, but it still has its risks. In an eight-year period ending with the close of 2016, 195 vaping-related fires or explosions were reported in the United States. Many of these incidents happened when the device or spare lithium-ion batteries were in the user’s pocket. Other incidents happened while charging the e-cigarette’s batteries. All of the reported problems related specifically to lithium-ion batteries.

The charging incidents in particular are worth noting, as fires could occur while the tenant is away or asleep. Even so, the number of reported incidents is relatively small, considering that more than 3 percent of all U.S. adults vape, according to 2016 statistics.

Ultimately, it’s up to you whether allowing e-cigarettes is worth the extra cleanup effort or the potential fire hazards. If you decide to allow vaping, it may be worthwhile to note an extra cleaning charge in the rental agreement. Make sure your tenants are well aware of your vaping and smoking rules before renting to them. A questionnaire asking potential tenants about smoking and vaping habits could help protect your property from careless tenants. They’ll be responsible for any excessive repair or cleanup issues that result during or after their tenancy.

California Rent Control Bill Advances in Senate: AB 1482 Could Expand Rent Control in Los Angeles and Now Includes a “Just Cause” Provision

Written by Apartment Management Magazine on . Posted in Blog

By Jenna Chandler

California is one step closer toward having statewide rent control. An expanded version of an “anti-rent gouging bill” cleared its first senate committee late Tuesday night.

“We have to recognize some people are hurting in our economy,” said Senator Hannah-Beth Jackson (D-Santa Barbara), who chairs the senate judiciary committee.

The bill was heard by the committee Tuesday afternoon during a marathon session, but because several committee members were absent, it didn’t get the votes it needed until shortly before midnight. Several Los Angeles advocates, including a rep for Mayor Eric Garcetti and organizers with ACT-LA, were at the Capitol in Sacramento to register their support.

AB 1482 will have to be vetted next by the senate appropriations committee. If it ultimately approved in the full Senate (it already passed the Assembly) and signed into law by Gov. Gavin Newsom, it would make it illegal for property owners to raise rents more than 7 percent, plus the Consumer Price Index, in one year. The CPI averages about 2.5 percent in California. Homes constructed in the past 10 years would be exempt, and the law would expire in 2023.

AB 1482 now also includes a provision that would only allow landlords to evict tenants with “just cause,” originally part of another bill, AB 1481, that did not clear the Assembly before a key legislative deadline in May. Examples of just cause include failing to pay rent, causing a nuisance, and “criminal activity by the tenant on the premises.”

The rent control element would have the largest impact on cities that don’t already have rent control laws. But renters in cities that do have local rent control laws—including the city of Los Angeles—could benefit, too, according to a new analysis from the Terner Center for Housing Innovation at UC Berkeley.

The report estimates AB 1482 would impact 4.6 million households statewide, protecting them “from unsustainable rent increases, at least in the short term.”

The Terner Center zeroed in more closely on 10 communities, including three with rent control laws: Fruitvale and West Oakland, the Mission in San Francisco, and Boyle Heights in Los Angeles. In those areas, it determined the bill would extend rent control provisions to 31,212 residential units.

That’s because AB 1482 would apply to rental units that are not already covered by local rent control policies. In Los Angeles, for example, units built after October 1, 1978 are not covered by the local rent control law. Under AB 1482, units built in Los Angeles between 1978 and 2009 would be covered.

The California Apartment Association and the California Association of Realtors are fighting the bill, calling rent control a “decades-old failed policy.”

“Our biggest concern is we don’t make a bad problem worse by scaring off development in California,” said Debra Carlton, a California Apartment Association spokesperson.

California has vastly underbuilt housing for years, and it’s one of the reasons why the cost of renting is so expensive.

Over the last decade, an average of less than 80,000 homes have been built in California annually, according to the state’s housing department. A 2016 report from McKinsey Global Institute finds that California ranks 49th out of all 50 states in terms of per capita housing construction.

Opposition groups have already hashed out a compromise with lawmakers to water down the bill, lowering the rent cap from 5 percent, as originally proposed, to 7 percent.

The Terner Center says that amount is high enough that it would “not curtail new [housing] production.”

“I believe landlords should have room to operate at a reasonable profit,” Jackson said Tuesday. “This bill as amended… gives landlords plenty of room to raise rents, some might argue too much room.”

Jenna Chandler is the editor of Curbed LA. She oversees the site’s editorial operations and writes about housing and density. Before joining Curbed in 2016, she was a staff writer at the Orange County Register, a senior local editor at Patch, and a reporter for the Porterville Recorder in California’s San Joaquin Valley. Raised in the sunshine of Los Angeles and Orange counties, she always puts “the” in front of freeway names (but never before PCH). She has lived in Long Beach and Santa Monica; today she lives between Pailin Thai Cuisine and Griffith Park.

What Every Property Manager Needs to Know About the On-Demand Economy

Written by Apartment Management Magazine on . Posted in Blog

By Megan Eales Monroe

We live in an age where nearly everything is available on-demand.

Uber and Lyft are gradually replacing traditional taxi services. AirBnb has taken a chunk of the hotel industry’s revenue. Amazon is investing heavily in infrastructure to support one-day shipping. Babysitters, dog walkers, virtual assistants, and even doctors are now available to many consumers with the tap of a button, thanks to the prevalence of mobile technology and artificial intelligence.

This new reality is known as the ‘On-Demand Economy,” and no industry is immune to the disruption it will cause — including real estate. As a property manager, “business as usual” will no longer meet the high expectations of today’s renters. According to Microsoft’s’ 2018 State of Global Customer Service report, 56% of consumers have higher expectations for customer service now than they had only one year prior.

In the on-demand economy, renters are looking for personalization, convenience, and speed during their search for housing. In short, they expect a great experience. This creates an exciting opportunity for service-focused property managers to thrive.

Providing a great experience is what will set your business apart in the on-demand economy. Here are five concrete strategies for improving the resident experience from beginning to end.

Automate Your Vacancy Postings

Renters today, especially millennials, prefer to find information about rental units on their own time, rather than making a call during business hours just to find out what’s available. Listing sites such as Zillow, HotPads, Rentler, Zumper, RentLingo, and many more are where renters often begin their search for housing. Your company’s website also plays a large role. Without accurate, up-to-date information available on a professional website, as well as the most popular third-party rental listing sites, you will struggle to fill units quickly.

But manually posting rental vacancy information to a property management website plus third-party listing sites can be time-consuming for your staff, and it can also lead to poor experiences for potential residents if leasing staff fails to remove occupied units or posts incorrect information.

The best solution, which ensures consistent posting to all third-party listing sites and your website while saving hours of time for staff, is one-click vacancy posting. You can easily manage vacancies and create better experiences for prospective residents, right from the very first time they engage with your brand.

Make Info and Showings Available On-Demand

A Zillow Group Report on Consumer Housing Trends found that 71% of renters said they expect a response to their initial rental inquiry in 24 hours. 31% said they expect a response within just a few hours. This is a high bar for leasing staff to meet, and even the most skilled leasing agents may struggle to respond to all inquiries on such a tight timeframe.

To solve this problem, make the most of new innovations in AI technology to improve your lead-to-lease conversion process by automatically engaging each lead, answering their questions with conversational AI, and allowing qualified leads to book showings at their own convenience.

You can even allow tenants to book a self-guided showing by using lockbox technology. Leads can receive a unique code to gain access to the unit shortly before their showing. With on-demand showings, you can impress prospective residents by catering to their preferences, delivering instant service, and gathering qualified applicants more quickly and efficiently.

Bring Applications and Screening Online

Create a better experience for new residents by bringing all application, screening, and leasing steps online. Mobile technology can empower your team to obtain a signed lease faster, even during the renter’s first visit to the property.

Online applications mean that a renter may apply and pay the application before they arrive for their showing, or even during the showing itself. With instant tenant screening that provides credit, eviction, and criminal reports, prospective renters who meet the screening criteria can be given an “approved” rental decision on-the-spot.

This will make it possible for your property to win more new residents, since prospects will be less likely to apply at similar properties while they wait for a decision. Instead, an approved applicant can sign the lease right away. Or, if they need time to decide, they may submit a signed lease later on from anywhere, without the inconvenience of scanning, faxing, or returning a signed paper lease.

Let Residents Pay Their Way

Today’s renters expect to be able to do everything online, and that includes paying rent. By allowing your renters to pay online, you’ll save them a trip to the drop box, front office, or even the post office. They’ll appreciate the convenience of being able to pay from anywhere using their computer or a smartphone,

Online rent payments also save time and costs associated with paper checks, money orders, or even cash payments — many companies have been able to cut the time spent on rent week activities in half, since online payments drastically simplify reconciliation and reporting. And finally, online payment options reduce the instance of human error in data entry, ensuring 100% accuracy.

Collect Maintenance Requests Online

Yet another experience that can be improved for your residents (and staff) is maintenance requests.

According to research by Microsoft, 70% of consumers globally have a more favorable view of brands that keep in contact with proactive customer service notifications, and 52% of consumers in the U.S. have a more favorable view of brands that offer a mobile-responsive customer service support portal.  

This strategy can easily be applied to maintenance for rental properties. Instead of having to call to report or follow up on a maintenance issue, let your residents submit requests via an online portal using their computer or a smartphone. Then, they’ll receive regular updates on the status of their request via their preferred communication method, whether SMS or email. This vastly improves the experience for residents when something goes amiss.

Few things matter to your residents today more than experience. With so many options available at their fingertips, the experience that you provide can differentiate your company from the rest — so focus on making it a good one with these five strategies.

AppFolio, Inc. develops Property Management Software that helps businesses improve their workflow so they save time and make more money.  Appfolio submits articles & blogs including topics of Resident Retention, Improved Owner Communication, Time Management, and more.

Rent Control and RUBS

Written by Apartment Management Magazine on . Posted in Blog

By Joseph DeCarlo, MBA, CPM, CCIM

Even though Proposition 10 (Rent Control) was defeated in the November 2018 election, cities are allowed to enact rent control and moratoriums.  The County of Los Angeles recently instituted a rental cap that remains in effect until the end of 2019, which will likely be extended.

MITIGATING EFFECTS OF RENT CONTOL OR MORATORIUMS

Many rent control ordinances are capped at CPI or 3% annually.  Cities such as Santa Monica or Los Angeles have unique rules and regulations with no standardized or uniform code.  While rents are capped operating expenses like trash, electricity, water, gas fees can increase freely.  When operating expenses increase faster than rent, the owners operating income and cash flow decreases and could even be negative.  New apartments in California, starting in 2020 will require separate meters or sub meters.  Large apartment complexes usually bill back these utility costs to their tenants using an independent billing company.  These outside billing companies will likely not service smaller apartment complexes due to economics of scale.

RUBS FOR SMALLER UNITS

Most smaller unit managers do not use RUBS (Ratio Utility Billing System) to bill back utilities to their tenants.  If you have RUBS in place, before rent control is enacted, you may continue to use RUBS however, cannot institute RUBS unless for vacancy re-rents in City of Los Angeles.  In other words, if RUBS is in place you can continue to use it.  We try to promote the environmental benefits of using less utilities fees to our tenants.  Installing submeters is usually very costly and not feasible.

REASONS property owners DO not usE RUBS?

  1. Usually we institute RUBS in lieu of a rent increase and some owners want the higher rent today
  2. It’s difficult to find a billing company that will handle less than a 100 unit property.
  3. Property Managers and onsite managers are not receptive as it is hard to explain to existing and new tenants and onsite managers need to be trained.
  4. Some owners and property management companies are afraid of change and the added work
  5. Small property owners need to find a property management firm that will do the RUBS billing and conduct the necessary training to implement.

IMPLEMENTING RUBS

Each tenant gets a monthly rental bill with the base rent and RUBS charges in an itemized list.  We provide the tenants the actual utility bills if they question the amount, as we do not mark up any of these bills.  A 2 bedroom pays a higher percentage than a 1 bedroom apartment since they generate more utilities.

RUBS Factors

Looking at the real estate tax bill, you may want to use Sewer & Water Bonds, City Services (Paramedics) etc., as part of the calculations for the RUBS charges.  As these costs increase, the tenants will pay the increases vs. a rent control cap.  This is similar to a commercial property net lease, except for maintenance costs.  In California, Civil Code 1941.1 states “Landlord must provide a habitable unit” (no roof leaks, working plumbing & electrical, etc.).  We, as the property management firm, do all of the billing and collection and charge the tenants a $4.00 p/month fee and there is no cost to the apartment owner for RUBS.

By using RUBS, which usually returns over 5% per/mo. of your gross income, you can more than likely expect to cover your property management cost for the month.  That means free management for your apartment.

In summary, rent control is on the horizon and apartment owners should now do everything possible now to have secure future income practices in place that a rent control cap allows.  Using RUBS, allows the owner to pass higher utility and other costs, dollar for dollar, to the tenant.  RUBS is environmentally friendly as tenants will use less utilities knowing they will pay more if they are wasteful.

Joseph W. DeCarlo

JD Property Management, Inc.

joe@jdproperty.com  I  www.jdproperty.com

Author personally owns over 100 units, previous Adjunct Real Estate Professor at Coastline Community College for over 30 years and his property management firm manages over 2,000 units.

Five Steps to Mastering Move-Outs

Written by Apartment Management Magazine on . Posted in Blog

by David Crown

Move-ins and move-outs can be delicate things. If mishandled by a property manager, they can lead to upset tenants or far worse. Disputes over damages take a toll on both sides, and a late refund of deposit money could land you in legal trouble. Whether you’re managing single family homes or urban high-rises, it’s your responsibility to make sure that every unit is clean and fully functional before the next tenant moves in. Through strict organization and clear communication, you can streamline this process and avoid costly mistakes. Here are my keys to smooth and painless move-outs

1. Get It In Writing

It’s important that you know your rights as a landlord before the move-out process begins. Here in California and in many other states, by law, a tenant must provide a certain amount of notice — typically 30 days — before moving out, meaning the property owner can legally charge rent for that amount of time after they’ve been given that notice. But you should never settle for a verbal notice: Always demand that tenants provide written documentation of their intention to move. This will leave zero room for misunderstandings or bad-faith actions on the part of the tenant. As long as the Intent to Vacate is signed and dated, it’s valid, even if it’s written on a cocktail napkin. Saying they’ll move out in a month is one thing; signing any form of document that details their intention to do so is another. If they fail to vacate the unit within the appropriate time after providing notice, they may be responsible for paying another month’s rent.

2. Tell Tenants What You Expect

Avoid surprising your tenant with any charges by instead telling them exactly what it is you expect from them during the move-out process. My company sends a Receipt of 30-Day Notice to Move-Out document, which includes a bulleted list of things the tenant can do to keep as much of their security deposit as possible. This includes informing them that we require the unit to be professionally cleaned, so if they wish to have it cleaned by a company of their choosing rather than have us pay for it with part of their deposit, they must provide us with a receipt. It also lets them know what items they must return to management before vacating. I highly recommend creating a form like this that you can use repeatedly

3. Provide An Itemized List of Damages

Tenants don’t often take kindly to a landlord taking anything out of their security deposit, no matter how warranted the charge is. Some animosity from a tenant may be unavoidable. But don’t give them additional (and valid) reason to be upset with your service by failing to clearly detail the charges you’ve extracted and exactly what they’re paying for. If you don’t provide this information, you’re opening the door to nasty reviews online or, far worse, putting yourself at risk of serious legal action. I’ve harped on the importance of clear communication in the past, and I’ll do it again here: Don’t neglect to communicate.

4. Document In Detail

This key is also in the spirit of communication. When you provide your itemized list of damages, be painstakingly specific about each and every item you’ve charged the tenant for. The more specific you are with your inspection report, the harder it will be for a tenant to falsely dispute the damages. Walk the unit with a new tenant before they move in, taking photographs of every surface and marking down all current damages. Then take another set of pictures when they move out. A comparison between the two sets of photos will leave nothing to interpretation.

5. Refund On Time

The next crucial key to a smooth move-out may sound simple, but just like the itemized listing of charges, taking it for granted could get you into legal trouble: Always refund your tenant the remainder of their security deposit on time. In fact, make it a point of principle to always refund tenants a week early to avoid any possible dispute. Don’t cut yourself any slack on this. Scheduling is essential, here and in all things property-management related.

By making these strategies a routine that you follow every time a tenant tells you they intend to move out of a unit, you’ll spare both parties many headaches, and protect yourself from the dangers that befall less attentive managers.

David Crown is the C.E.O. of Los Angeles Property Management Group, and has over twenty-five years of experience managing all types of income properties. A hands-on leader who has managed properties in 16 states, Mr. Crown has been asked to serve as an expert witness in property management matters, and currently serves on the Forbes Real Estate Council. He can be reached directly at (818) 646-8151.

What is the True Cost of an Eviction?

Written by Apartment Management Magazine on . Posted in Blog

By Eric D. Jarvis, Esq., Founder of ReassureRent

Ask any attorney what the cost of an eviction is, and he or she will provide you a list of their services and fees, along with a schedule of court costs.  Legal fees and costs are money out of your pocket, but an eviction exacts a much heavier toll.  Every day in which your property is occupied by a non-paying renter is another day without income.  In the meantime, you are still responsible for the mortgage, property taxes, insurance, and maintenance.  And now, in many California courts and jurisdictions, it is taking longer and longer to get an eviction.  The 2018 Court Statistics Report of the Judicial Council of California reports that less than 75% of all eviction cases will be resolved in 45 days or less.  More cases than ever will take months to resolve.  The loss of rental income for two months, three months, or even as long as six months, is the real cost of an eviction, and can be devastating for rental property owners who are not adequately protected. 

The unlawful detainer process in California was originally designed to be a fairly quick legal process.  Legal timelines were shortened, and proceedings were held on a speedy basis, with the goal of getting property back into the hands of the landlord quickly, so it could become income producing again.

In the current legal and political climate, however, the unlawful detainer process has been swept up in the sympathies associated with homelessness and the “housing shortage” and “affordable housing”.  The result is that more and more resources are being made available to tenants who have defaulted on their rent.  These resources range from public assistance and charitable organizations with honorable intentions, to mercenary law firms who have jumped on the bandwagon to shake down honest landlords. 

When a tenant becomes attorney-represented, the unlawful detainer is no longer going to be a speedy process.  One goal of the attorney is to provide the tenant with rent-free possession for as long as they can!  The delaying tactics used include making numerous motions and objections, each of which requires its own individual court hearings, propounding extensive discovery, which requires the landlord to supply numerous documents, respond to written questions, and possibly even be examined under oath, and even demanding trial by jury.  Even if you win, the tenant can file bankruptcy, which will result in another round of hearings in federal court, just to enforce the judgement.  All of these tactics will extend the eviction process by weeks or even months.

The delaying tactics of tenants and their attorneys affect even “simple” evictions, because of their impact on the courts.  Most California counties have only one or two courtrooms which hear unlawful detainer cases.  These were perfectly adequate when most cases took a relatively short time to resolve.  However, when cases started to stretch out longer and longer, the courts have become backlogged beyond their intended capacity.  The result is that more and more unlawful detainer cases are being scheduled further into the future, and even then, may be rescheduled again.  Once a judgement is obtained, the court clerk’s offices are backed up and delayed in issuing the paperwork that is required to get the property back. 

In some California counties, the average time to get a non-paying tenant out of your unit has expanded from six weeks to three months.  In many cases, it now takes as long as six months to get your property back.  During that time, you are still making payments on the mortgage, property taxes, insurance, and maintenance, and probably eating into your own savings to do so.

One solution to protect rental income in the event of an eviction caused by non-payment of rent, is tenant default insurance.  Tenant default insurance is a brand-new type of insurance.  It is an insurance policy that protects the landlord in the event the tenant defaults by not paying rent.  This insurance will hire and pay for the attorney and court costs, up to $1500.  Most importantly, it will reimburse the landlord for the missing rent, from the day the original rent was due through the day the property is restored back to the landlord’s possession, up to six months (subject to a small deductible). 

If you have an eviction, it could well be delayed, and you could be without rental income for up to six months.  If you have tenant default insurance, however, your rental income will be protected.  Going through an eviction is difficult, but the real cost of the eviction can be greatly reduced with tenant default insurance.

Eric D. Jarvis is the founder of ReassureRent tenant default insurance.  Eric is also an attorney, who, prior to his 20 years as an insurance professional, practiced landlord/tenant law in Southern California.  ReassureRent can be reached at (833) 5TENANT (833-583-6268), and at www.reassurerent.com/AptNews.

Real Estate Title Fraud and Attacking the Perpetrators to Protect Your Investment

Written by Apartment Management Magazine on . Posted in Blog

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

INTRODUCTION TO THE SUBJECT OF REAL ESTATE TITLE FRAUD AND HOW YOU CAN UNWIND IT AND PROTECT YOUR CHAIN OF TITLE

Crooks can perpetrate a real estate fraud scheme to manipulate the title of your property in an attempt to rob you of your equity, and profit at your expense.    Real estate title fraud schemes can take on several creative forms- a forged grant deed, a forged quitclaim deed, fraudulent sale, recording deeds of trust for loans which you did not receive, elder abuse, undue influence, and or starting an unlawful foreclosure. Sometimes there can be several people involved with the scheme, especially if partial interests are transferred without your consent. A corrupt notary public may be a co-conspirator in the scheme. A family member also may be a ring leader in the scheme.   Another common scenario, is a “voluntary” transfer of title during a duress situation of a mortgage lender’s foreclosure before the trustee’s sale to delay the sale.    A borrower who is seriously behind on his mortgage is vulnerable and susceptible to abuse by title crooks who want to steal title for much less than fair market value on the eve of foreclosure.  Even if the foreclosure is stalled, the crooked transferee refuses to transfer the title back to you, and then tries to sell the property or lease the property without your consent.  

If you are the victim of real estate title fraud or loan fraud, you can and should file a criminal complaint with the city attorney or district attorney, but these government agencies cannot directly fix your damaged title chain through a criminal prosecution.   Even if the title crook is in jail, your title, unless restored, is still is defective and not marketable. 

You need to take prompt action to protect your title and restore clear title by filing a civil action.    In considering whether to file a civil action to clear your title, the first step is to review, what my law school real property professor called, “the current state of the title.” Get a real estate title checkup.  What is in a preliminary title report for your property ?  Has a fraudulent instrument been recorded in the county where the property is located ?   Has a fraudulent deed of trust been recorded ?  Who is involved in the title fraud, and who will be named as a defendant ?    Is there a wild deed in the chain of title that you did not sign and looks peculiar ?   Was your signature forged ?   Call a reputable title company and obtain a title report is a very important first step to obtain the county recording numbers for the fraudulent instruments.  

PULL OUT YOUR TITLE INSURANCE POLICY FROM STORAGE

When you purchased the property you probably received a policy of title insurance as a property owner.  If you have a title insurance policy, and you have been a victim of title fraud, it is highly recommended to file a claim with your title insurance carrier to seek relief and protection under your title insurance policy.  If the title insurance company accepts your claim, the title insurance company can review your title report, investigate the situation, and may appoint a real estate attorney who can file a lawsuit to clear the title. An owner’s title insurance policy is a very important asset protection device that should be obtained each time you purchase a property.  

SEEK INJUNCTIVE RELIEF IN APPROPRIATE SITUATIONS

In contemplating legal action, an important issue is whether you should file a lawsuit for injunctive relief to block future fraudulent action.   Injunctive relief is a court order to restrain a third party from doing something injurious to the title of your property.   Perhaps the title crook is trying to sell the property to a third party.    The claim and remedy of injunctive relief can ask a judge with local jurisdiction to block a sale or future transfer.    Filing for an injunction can be in three forms-  the form of a temporary restraining order or TRO- which asks for emergency relief immediately in a case,  and or preliminary injunction to stop the unlawful action well before trial, and or a permanent injunction- which prohibits the unlawful act at trial.   If you prevail in a preliminary injunction hearing, this can set the tone for a successful case, beneficial settlement, or favorable outcome at trial.  If you obtain injunctive relief you can record the court order or judgment at the County Recorder’s Office to give notice to the world that the judge has ordered the crook to stop the activity well before the trial date, and that any potential transferee could be named in a lawsuit and may be subject to the claims.    

RECORD AND SERVE A LIS PENDENS

If and when a lawsuit is filed, the plaintiff also must record a lis pendens at the County recorder’s office.  The definition, rules, and procedures about a “lis pendens” notice are found in California statutes, namely,    Cal. Code of Civil Procedure Sections 405-405.24. to  405.39. 

The lis pendens notice is then served on all party defendants and  parties with an interest in the property.  If recorded properly, the lis pendens notice will be in the chain of title with its own county recording number.  The term “lis pendens” is a latin term for “action pending.” The lis pendens provides notice to the world in the title profile that a lawsuit is pending, and that any subsequent grantee, subsequent purchaser, assignee, or lender, takes title subject to the lawsuit claims.  Generally, a lender will not make a loan secured by a title that is subject to a lis pendens.  Generally, a title insurance company will not write a title insurance policy if the company is aware of the lis pendens.  Recording and serving a lis pendens is a key step in protecting the property owner’s interest against future title transfers while a lawsuit is pending.    For more information about recording a lis pendens contact LA Real Estate Law Group. 

MAIN LAWSUIT CLAIMS TO ATTACK TITLE FRAUD

Along with injunctive relief, your counsel can file a lawsuit for such claims as quiet title, fraud, declaratory relief, and cancellation of instruments. These claims are the “bullets” for your attack on title fraud activity.   One legal resource for learning more about the nuances of quiet title actions is the website “LAquiettitleattorney.com.”    Also, please review California Civil Code 3412-3415.  California Civil Code 3412 empowers a judge to cancel a fraudulently recorded instrument-  This code section provides,    

“3412.  A written instrument, in respect to which there is a reasonable apprehension that if left outstanding it may cause serious injury to a person against whom it is void or voidable, may, upon his application, be so adjudged, and ordered to be delivered up or canceled.”

As noted above, if you file a quiet title action, you are also required by law to record a lis pendens on the title, to provide notice that an action is pending with regard to the title of specific property.  In egregious cases, if you have applicable facts, you can also allege a cause of action for “slander of title”- this claim has the threat of punitive damages attached to it.  

CONCLUDING THOUGHTS ON ATTACKING REAL ESTATE TITLE FRAUD

If you have been the victim of real estate title fraud as to any property that you own, California civil law provides victims with claims and remedies that can be asserted to protect your property or to get the title to your property back in your name.  To file a civil action in proper form with knowledgeable real estate counsel, you will need to have some reasonable financial resources to sue the responsible defendants, and to move the case expeditiously in front of a judge in your local jurisdiction. If the claim is covered by title insurance, that is highly beneficial to reduce the expense of title litigation.     Experienced civil judges see these types of cases fairly often, and are interested in protecting the public.     Making a criminal complaint is also an important step, but a civil action needs to be filed to fix the cloud on your title, and to prevent block future transfers. 

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, 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.