Impact of Rent Control - Part 2

Our first part on Rent Control showed how Rent Control is designed to help local politicians and provide landlords with ways to generate new tenants at higher rates.

From the landlord point of view, there may or may not be reasons to support local Rent Control. For those that are “slumlords”, there can be some positives. Many tenants with financial limitations simply cannot afford to move or live elsewhere with higher rents.

Such tenants are often willing to endure less than favorable living conditions due to the economic restrictions, desiring to continue paying the same rent no matter how bad things get.

If, for example, a slumlord has a 12 unit apartment building fully rented, and the building provides a positive cash flow, there is now zero incentive to provide any upgrades or improvements. The slumlord no longer needs to continually attract “new” tenants.

Chances are the basic maintenance and management services are already factored in to the positive cash flow. It’s status quo for a period of years.

When a slumlord owns multiple buildings under these circumstances, they also have the opportunity to grow their rental portfolio. Lenders are more likely to finance a landlord with a proven track record and positive cash flow.

With a larger portfolio, if one building encounters a problem such as the need for major renovation or facing being condemned, the landlord has options such as selling the property to get out or tax benefits of rehabbing.

However, because of Rent Control, there is no need to help the tenants under these circumstances. It is not always the tenants that gain the most benefits.

Meanwhile, some tenants actually abuse their rent control privilege. Manhattan is a prime example. There are residency requirements of only a certain number of days per year. Over the years this had led to people who really live in other cities but come to NYC on business or leisure treat a Manhattan apartment like a time share and only stay a few weeks out of each year.

The point is that Rent Control has a different impact in different cities while currently falling under the same heading.

Our first part on Rent Control showed how Rent Control is designed to help local politicians and provide landlords with ways to generate new tenants at higher rates.

From the landlord point of view, there may or may not be reasons to support local Rent Control. For those that are “slumlords”, there can be some positives. Many tenants with financial limitations simply cannot afford to move or live elsewhere with higher rents.

Such tenants are often willing to endure less than favorable living conditions due to the economic restrictions, desiring to continue paying the same rent no matter how bad things get.

If, for example, a slumlord has a 12 unit apartment building fully rented, and the building provides a positive cash flow, there is now zero incentive to provide any upgrades or improvements. The slumlord no longer needs to continually attract “new” tenants.

Chances are the basic maintenance and management services are already factored in to the positive cash flow. It’s status quo for a period of years.

When a slumlord owns multiple buildings under these circumstances, they also have the opportunity to grow their rental portfolio. Lenders are more likely to finance a landlord with a proven track record and positive cash flow.

With a larger portfolio, if one building encounters a problem such as the need for major renovation or facing being condemned, the landlord has options such as selling the property to get out or tax benefits of rehabbing.

However, because of Rent Control, there is no need to help the tenants under these circumstances. It is not always the tenants that gain the most benefits.

Meanwhile, some tenants actually abuse their rent control privilege. Manhattan is a prime example. There are residency requirements of only a certain number of days per year. Over the years this had led to people who really live in other cities but come to NYC on business or leisure treat a Manhattan apartment like a time share and only stay a few weeks out of each year.

The point is that Rent Control has a different impact in different cities while currently falling under the same heading.

Impact of Rent Control - Part 1

(first of four parts)

Several states, including Illinois, have recently had proposed legislation to bring Rent Control options to municipalities within. Some cities and states have been under rent control for years.

The problem is that, generally speaking, the politicians behind it are proposing and backing Rent Control for the wrong reasons. They see it as a means to attract more votes. By showing lower income citizens that they have taken steps to prevent rent increases and will save them money, they reason that those residents will want to keep their local politician in office.

Many low income tenants are not thinking about how it impacts their future in that residence. One of the conditions is (in the majority of cases) placing a freeze on the amount of rent charged to the specific tenant residing in their specific unit.

However, if and when said tenant moves out, the landlord generally has the right to increase the rent for a “new” tenant. Because of this, landlords often have an incentive to discourage lower paying tenants from staying in place.

For example, in San Francisco, there have been instances of landlords spending literally thousands of dollars to relocate individual tenants in order to accommodate new renters at higher prices.

Suppose market conditions show that a landlord could be charging $450 per month more in rent than they are currently getting by performing a simple upgrade. The landlord sees this as “losing” $5,400 over the following year by having this tenant under the “freeze”.

This landlord finds another unit convenient for that tenant, and offers to pay the deposit, moving expenses, and a couple of months in rent to “help” the tenant to relocate. Let’s say the landlord does this for $4,400. The landlord then rents the “upgraded” apartment for $450 per month more, which over the course of that first year, brings in $1,000 more than the previous tenant would have generated.

What we have are politicians looking for votes to help themselves in the short term, and landlords finding ways to buck the system. Hardly the intended purpose of Rent Control.

This Home Has Better Bait Than A Fish Tank

Marketing a $3.5 million dollar listing is always a challenge, especially when it is located within a busy Chicago north side community away from Lake Michigan.

The push for this home is to promote the less common amenities, which for the featured Cortland Street property include a large wine cellar and a 300 gallon fish tank.

Although these are among the unique features of the home, marketing this listing is not being done for the entertainment value. Of course, it is 'fun' for people to have that daydream of having a 300 gallon fish tank in their home.

However, creating that daydream actually fails to bring the proper attention to this as a real estate listing. To put it bluntly, the number of potential buyers actually looking for a fish tank of that size for their home is most likely lower than the number of potential buyers looking for a $3.5 million home in that neighborhood.

Meanwhile, the prominent photos in the property profile also do not do this property justice. The top photo of the exterior actually reveal what appears to make this a smaller property than one would expect for a multi-million dollar home in the area in which is located.

As a general observation (without statistical backing), there figures to be a percentage of qualified potential buyers that would seek a home in this price range which is closely surrounded by neighbors and has limited space.

For example, the photo of the pool makes it look to be more like an expanded bathtub placed outside rather than a place to totally relax.

There are better ways this listing can be promoted. Not having an exterior photos within the presentation would be a start. Highlighting interior photos would better serve to make potential buyers want to see the inside. At the very least, when they see how cramped the location is, they would be at the property and could still fall in love with the interior amenities.

While a 300 gallon fish tank is interesting, perhaps other amenities of this property would be an even better fit for the right audience.

The idea is to have the most effective copy and photos, and have them compliment each other. In this case, right fish but so far it's the wrong bait.

Take a look:




https://www.nbcchicago.com/news/local/1744-cortland-street-chicago-real-estate-bucktown-home-for-sale-512762651.html

Opportunity Zones and Capital Gains Relief

Opportunity Zones are called that because they bring financial gain to investors with large capital gains.

 

While this is not a commission opportunity for licensed agents and brokers, there is a definite "service" opportunity for clients who have recently invested. It costs you nothing to fill in your clients about this opportunity. If you save him or her thousands of dollars they would have otherwise handed over to the IRS, you increase your chances of that client referring business to you.

 
Let’s show you how this works, and how you can benefit with thousands and thousands of dollars in tax savings.
 
We start with a couple of “Would You Rather” questions……

Would you rather pay taxes now, or invest your money NOW and push off the taxes until later?

The answer is to invest now. Take out most of your money now, tax free, and only leave a little of your money tied up.

Would you rather pay NO taxes on the new investment OR continue doing what you are doing and pay the taxes?

The answer is “Pay No Taxes”

Welcome to the Tax Cuts & Job Act of 2017. This is the biggest tax reform in years. It’s more innovative program is the Opportunity Zones.

How does this work?

You roll over Capital Gains into an Opportunity Zone Fund. It does not matter how you got the Capital Gain. It could be from the sale of a property, the sale of a business (not just assets), or selling of stock.

The fund must invest the money inside an Opportunity Zone.

By doing so, you PAY NO CAPITAL GAINS TAX NOW. What you are able to do is to defer those taxes for 7 years. Then, you pay them, but with a 15% discount in 2026.

Within 30 months of the time, the money goes into the Fund, although some money can be held in reserve.

There are plenty of Opportunity Zones around the country. In fact, there are more than 8,000 of them. All of them have one thing in common.

They are all underperforming areas, whether they are in metropolitan areas or in the middle of nowhere.

 

What do you get by investing in an Opportunity Zone?

Once the money is invested, you can do pretty much anything you want with it. This Act was written by people who believe in Capitalism. Let the market do what it does best. Find opportunities and maximize return. Let the government get out of their way.

By investing in these depressed areas, you pay NO Capital Gains taxes on the new investment. You MUST hold the asset for 10 years from the original date, and you MUST substantially improve the asset.

You can’t just park your money there for 10 years.

How does it work?

What you can do is take out the money as long as you continue to own the asset. For example, by refinancing. Once the property improvements you make are done, you can refinance and take your money back out. You are still tax free.

Just to clarify, there are some things you cannot do within an Opportunity Zone. These include not being able to invest in what are considered to be “sin” businesses. These would be gambling establishments, liquor stores, or adult entertainment establishments. You also cannot invest in marijuana distribution establishments.

There is nothing else to it!

Of course, there are a ton of regulations, since this is the IRS.

However, the idea is that you have an incentive to put your money into an economically depressed area. You help make something happen there, and you pay no tax on it.

 

If you or your client has Capital Gains of six figures from 2018, the "deadline", per the IRS, to secure an Opportunity Zone is June 28, 2019.

 

The http://Invest-Aware.com has information about a "ready to go" Opportunity Zone Fund, which saves you time and effort and can get your program started as soon as possible. This also becomes a passive participation, as their people handle the bids, permits, rehab, rentals, and property management.

 

There is also more info about this on the IRS web site:

 

https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions

 

Please let me know if you have questions or need more information about this "Opportunity"!

 

 

 

 

 

 

Buying Leads Or Finding Great Deals?

Real estate agents and (unlicensed) real estate investors are all wanting to make money in real estate and are looking for their next transaction to be involved in. In my role of providing a variety of marketing services for both on a regular basis over the years, I continue to notice differences in how they each operate.

From a business standpoint, it might be more important to be aware of those differences, whether you decide to adjust them or not.

A large percentage of agents, based on my experience, talk about "getting leads", whereas a large percentage of real estate investors talk in terms of "getting properties".

To be perfectly honest, this is one aspect of marketing from which agents can learn from investors.

If you are an agent, you are confident that you can bring a buyer to a "good deal" and "have no problem selling a good deal". However, I have many agents, whether marketing clients of mine or not, ask me about "getting more leads". In this case, "leads" are people and not properties. People may or may not be considering buying or selling at any point in time, and may take months to act even if they are.

All day long, marketing companies are pitching agents with "leads" opportunities, with some making a big deal about "exclusive leads". What they really mean is "exclusive to you through our company".

Either way, you get names and contact info on people who may or may not actually have serious or immediate interest in pursuing a deal and become a part of your database.

Compare this to what a real estate investor does. They aren't spending hard earned dollars paying Zillow (or other "lead generation" sources) for a list of people who selected their zip code while browsing one of many web sites. Investors are looking for their next deal, if buying, or next buyer or investor if selling. Their time and effort is spent on research, whether on their own or by having an agent that knows their criteria and finds potential deals for them.

The point is that you do not have to rely on lead generation companies to find sellers and/or buyers. If you have the properties with the best deals, buyers and sellers will find you.

As an agent, you should never accept the "There is no inventory" claim. If investor groups know how and where to find distressed property owners, so should you. It takes some digging to come up with lists of properties facing foreclosure, under a tax lien, in a probate, or coming up for auction.

Investors find these, make offers when it makes sense for them, and are on their way toward rental income, a flip for profit, or toward rehabbing a property to increase its value to sell for a bigger profit.

Events happen in peoples' lives, such as job loss, medical emergencies, relocation for employment, divorce, and family concerns. The "flip"houses are not just in the crappy neighborhoods you don't work in.

Suppose you can uncover a distressed property for which the owner needs $100,000 and the comps show it would sell now for $175,000. That owner doesn't have time to wait for weeks. However, you know that you could sell it right away for significantly less while helping a satisfied seller.

That seller is not going to go on some web site and click for a brochure to become a lead for an agent. You would not find that seller if you didn't do your research. The more hidden "good" deals you can find, the more likely you are to attract buyers and sellers.

How does doing this attract sellers? As soon as you close on a great deal you found, especially one not found on the MLS, you have your local success story. By spreading the word through your marketing channels, you let others know that if they have, or know someone that has, a problem property, that you are the local agent who can get it sold before it ever reaches the MLS.

THAT is the best kind of lead you could develop, and it is all yours, truly exclusive.

Big Loss For The BIg Unit - Why Brag About It?

Randy Johnson, the Hall of Fame pitcher (known as The Big Unit), just had his mansion sell at auction for $7.3 million dollars. While commanding that much for a mansion of that magnitude normally commands media attention, this one actually got the attention for the wrong reason.

It seems that this 25,000 square foot home which sat on five acres at the base of Mummy Mountain in Paradise Valley, had no takers last fall when the price was reportedly reduced to $16.5 million. The auction of this property resulted in a purchase price which was less than half of the listing price following a price reduction of more than $3 million.

What does this have to do with real estate marketing?

Unfortunately, there is an answer to this question. Had this story appeared as a result of investigation by a reporter, that would be one thing. News which is not positive gets published, especially in the age of social media and fewer secrets.

However, this information got out because of a Press Release issued by the agent team of the real estate firm which had the listing. Say what?

While looking to make news to promote the sale of a multi-million dollar property is understandable, that is far from the case here.

In real estate marketing, the adage that "any publicity is good publicity" does not apply.

This agent just told owners of the mansions in this area that his firm couldn't even sell a listing they voluntarily took for half of the price. Worse yet, this additional publicity could wind up costing nearby property owners millions in lost revenue if they decide or need to sell in the near future because of how this damages local comps.

At the same time, it's hard to imagine a potential seller looking to work with this listing agent in the near future based on this result. There is more to it than getting less than half of the price. It shows a savvy seller that this agent team accepts listings which are not priced correctly.

Adding to the mix is that the sale of this mansion was the result of bidding at auction, and not even a negotiation involving the agent and/or his team.

How an agent (or agent team) markets their listings and how they market themselves are ideally tied together.

Bragging about a failed listing, especially one of this magnitude, is poor marketing.

http://ktar.com/story/2420825/sold-randy-johnsons-paradise-valley-home-goes-for-7-3m-at-auction/