Rent Control: A 2019 Recap and a 2020 Look Forward

Freedom First REIA, LTD

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Housing affordability has always been an issue for our country, but its spread beyond the coasts and to middle-income households has increased momentum behind calls for rent control and other draconian measures as a “quick fix” to the problem. Much is at stake for our industry as more than half of the total number of apartment units nationwide are at risk of potential new rent control regulations.

In 2018, the industry spent more than $75 million to defeat a California ballot initiative that would have rolled back that state’s rent control restrictions. While the victory drew a line in the sand and showed the industry is prepared and ready to fight unwise and failed policies, another ballot initiative has already qualified for 2020. Moreover, two states enacted “anti-gouging” rent caps this year, setting a potential precedent for other states to follow. This memo provides a summary of actions taken in 2019 and offers a preview of what we expect in 2020. Suffice it to say, we have several fights on our hands in the year ahead.

2019 Review:

The year served as one of the most turbulent in recent memory for the multifamily industry, punctuated with major victories and defeats. The resulting rent control policies in 2019 have already led to a significant decline in investment in those areas as found in NMHC’s October Quarterly Survey. Here’s a look at where we saw the most action:

In February, Oregon lawmakers adopted the nation’s first statewide rent control legislation, capping rent increases at seven percent plus the Consumer Price Index (CPI), to be no more than 10 percent. Units developed within the past 15 years are exempt.

In New York, lawmakers enacted a sweeping expansion of the state’s existing rent control policies. Perhaps most importantly, the law makes it nearly impossible to recoup investment in rent-regulated apartments, including limiting major capital improvements to just $15,000 per unit. Moreover, rent control can now be applied to any jurisdiction in the state of New York, whereas it was previously limited to the New York City area.

Following in the steps of Oregon, California also passed a statewide rent cap (five percent plus CPI or 10 percent, whichever is less) despite voters rejecting the 2018 ballot initiative designed to expand rent control. This new law does not preempt existing California rent control statutes, most of which are more onerous than the new statewide law. It simply sets a cap for areas without rent control and overlays existing laws. Units built within the past 15 years are exempt.

Bills were introduced in Colorado, Illinois and Nevada seeking to lift statewide preemption of rent control. With a concerted industry push, each measure failed to make it out of the respective state house committees.

At the federal level, Representative Alexandria Ocasio-Cortez (D-NY) introduced a proposal to limit rent increases to the greater of three percent or the percentage increase of CPI. To date, the bill has not received serious consideration.

Housing has also become a priority for the Democratic presidential candidates, with each staking out a variety of positions on the issue. While we are pleased to see that some of the candidates are emphasizing policies focused on the supply shortage, we are discouraged that a number are also including rent control in their housing platforms. Senator Bernie Sanders’ (I-VT) housing platform promotes a national cap on rent increases at no more than three percent or 1.5 times CPI (whichever is higher). Senator Elizabeth Warren (D-MA) would require states to repeal rent control preemption laws to be eligible to receive any new affordable housing money.

2020 Outlook:

If 2019 proved anything, it’s that this has the potential to be an existential threat to the industry and something that needs to be a priority, not just for NMHC, but also our member firms. To help you understand what we are facing in 2020, the following is an assessment of some of the anticipated threats.

  • Despite the defeat in 2018, the proponents of stricter California rent control have already secured enough signatures to put another initiative in the ballot in 2020. It cost the industry $75 million to defeat the 2018 ballot initiative. Given the expected higher turnout for 2020, a presidential election, not to mention higher advertising costs in a presidential election year, this would suggest that the upcoming initiative will be as expensive or more.
  • In Colorado and Illinois, we expect a return of measures that would eliminate their statewide rent control preemptions. In each state, Democrats control both chambers of the legislature as well as the governorship, meaning that rent control could move very quickly from a proposal to a law unless a vigorous defense is mounted. Notably, in Illinois, Chicago teachers included rent control as a demand for settling their recent strike. The Nevada legislature will not convene in 2020, but it is likely that rent control measures will arise in 2021.
  • In Massachusetts, a bill to remove the statewide preemption will receive its first hearing in January 2020. While Republican Governor Charlie Baker supports solutions that address the lack of housing supply, rent control amendments to the bill are expected.
  • While Washington State maintains a statewide preemption, the Seattle City Council is nonetheless actively pushing for rent control. In the November elections, City Councilwoman Kshama Sawant – an outspoken rent control advocate – defeated a candidate heavily backed by Amazon, which opposed rent control.
  • There have long been rent control rumblings in Minnesota. While the state has preemption provisions, the Minneapolis City Council is officially studying rent control as an option to address housing affordability.
  • In New Jersey, where some cities already impose rent control, lawmakers introduced a measure in late 2019 that would set a statewide rent cap at five percent plus CPI or 10 percent, whichever is lower. The proposal is likely to receive consideration in this year’s legislative session.
  • Florida and Utah lawmakers also introduced measures in 2019 that would remove the state preemption on rent control. The bills are poised for consideration in the new year.
  • With Democrats in control of all statewide elected offices and the General Assembly in Virginia, and the pending arrival of Amazon’s HQ2 in Northern Virginia, it is possible that rent control will be raised.
  • Though Michigan preempts local municipalities from imposing rent control, the Ann Arbor City Council is pursuing the policy. It remains to be seen how the issue will proceed in the state.
  • While Georgia also has a preemption against rent control, Atlanta City Councilman Antonio Brown recently introduced a resolution encouraging the state to allow cities to pass rent control legislation.
Housing affordability is clearly top-of-mind for many lawmakers, but the fact remains that too many view rent control as a source of immediate relief while they work out longer term solutions that address the supply shortage. NMHC continues to advance real solutions to the housing affordability crisis and to push back on misguided rent control. To that end, NMHC is dedicated to making sure you are aware of all of our resources at your disposal.

NMHC’s rent control resource page includes news, information and resources on the topic. You can also sign up here to receive critical updates directly from NMHC.

Growing Homes Together, our web site which provides you not only with the latest news on rent control across the country (sign up for the newsletter), but also offers talking points, op-eds and much more to help you make arguments against rent control.

NMHC’s Housing Affordability Toolkit explains the cost drivers behind apartment development and delves into the best practices behind several tools that will actually address the affordability challenge.

NMHC’s Affordable Housing webpage is a source of the latest news on housing affordability in general: https://www.nmhc.org/news/nmhc-news/rent-control-a-2019-recap-and-a-2020-look-forward/

For more resources on rent control:
 https://www.underoneroofny.org/

My Small Business Health Quiz - Part 2

Utah Real Estate Investors Association

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"The question isn't who is going to let me, it's who is going to stop me.” - Ayn Rand

Even if "business is good" right now, part of our role is to help point out potential potholes along the future path for business-owner's.

Which is why I'm here to raise some questions for you.

It's a bit of a different approach than I normally take in my Strategy Note, but if you take it seriously ... it can be a transformative process.

Take a look at each of these questions, even if you are troubled by any of your answers--

Behm's Small Business Health Quiz

From part one...

#1: Is the value of your business firmly established?
[Buy/Sell Agreements]

#2: Is there an emergency plan?
[Will & Asset Protection Strategy]

#3: What happens next?
[Business Succession Plan, and more]

Now to the next questions...

#4: What are your retirement plans?

Questions to consider:

  • Do I know how much income I will actually need at retirement?
  • How much control in the business must I maintain to secure my retirement income?
  • Have I looked into financing options for key employees to buy me out?
  • Read More...


My Small Business Health Quiz - Part 1

Utah Real Estate Investors Association

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"You have brains in your head. You have feet in your shoes. You can steer yourself any direction you choose." - Dr. Seuss

These are questions that might raise a few concerns, and that's fine -- it's what we're here for. Alongside establishing clear measurables for success (Key Performance Indicators, KPI's), these are the sort of things that effectively-growing  small businesses really need to get a handle on, regardless of their tax situation.

I like to share these questions every so often with my people, simply because it's good practice to continuously revisit these things and ensure we're headed in the right direction.

And further, as a business owner, it's important that you take a REGULAR, clear-eyed look at the underlying legal and financial foundations for your business.

As you pull our tax documentation together, this is the perfect time.

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Janet Behm's 2019 Personal Income Tax Documents List

Utah Real Estate Investors Association

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"Don't wait. The time will never be just right." - Napoleon Hill

Filing your taxes on your own is not for the faint of heart. That's even with nice-looking software on the market which purport to make it easy for you.

But that's what we're here for. Let *us* make it easy for you.

Below is a list of what you will need during the tax preparation process. Not all of them will apply to you -- probably MOST will not. Nonetheless, it's a useful checklist.

Before you get overwhelmed: yes, this is a long list -- but it's the unfortunate reality of our tax code that it's not even comprehensive! But these items will cover 95% of taxpayers. Really, this is for ensuring that we're able to help you keep every dollar you can
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Natioinal REIA University: FREE Workshop on Meth and other Health Department Issues in your Rental Properties

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A discussion with Greg Kesterman from Hamilton County Public Health on health issues concerning property and tenants.

This course covers several topics on health issues one might face as a landlord including hoarding, meth clean up and interacting with the health department.

Incudes 1/2 an Hour in PHP Credits in Federal Regulations

Click Here to Take Online Class


Natioinal REIA University: FREE Workshop on Meth and other Health Department Issues in your Rental Properties

0
Comments

A discussion with Greg Kesterman from Hamilton County Public Health on health issues concerning property and tenants.

This course covers several topics on health issues one might face as a landlord including hoarding, meth clean up and interacting with the health department.

Incudes 1/2 an Hour in PHP Credits in Federal Regulations

Click Here to Take Online Class


Is it time to sell that rental?

Central Ohio Real Estate Entrepreneurs

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According to a news article by WOSU Radio (and the experience of most of our community), property values in Central Ohio are at a record high. Does that mean it's time to sell?

As with all great real estate questions, the answer is, "It depends".

If you have rentals you'd rather not own, selling soon might get you the highest price on a property you don't want anyway. If you're good at finding distressed and low priced deals, it might be an opportunity to do a 1031 exchange into a rental you'll like better in the long run.

But if you bought your rental for long-term income and wealth building, believing that the market might be topping out (we don't believe that, but we don't have a crystal ball, either) is no reason to sell. The increased value is adding to your wealth in a non-taxable manner, and even if prices drop drastically, your income probably won't.

Getting rid of properties that have turned out to be too far, too management-intensive, or too unprofitable is always a good thing, and although we might not be at the top of the market just yet, now is a good time to divest yourself of those losers. But keep the keepers: jumping in and out of the market is NOT a good way to build wealth in real estate!

Multiple Offers Strategies

Minnesota Real Estate Investors Association, Inc.

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When it comes to making offers, most investors only know how to make one offer at a time.  They usually make an all cash offer, also known as the MAO (Maximum Allowable Offer) or they get a loan from a bank, hard money lender or a private investor.  This strategy has worked fine for investors and if you are only making offers on bank REOs on through the MLS, then a cash/MAO offer is really all you will be able to make.

The average number offers to get one accepted with this approach is 20-40 offers to get one accepted in today’s market for most of the country.  Some more experienced investors have been able to reduce that number down to about 5-10 offers to one acceptance by being very selective on what properties to make offers on.  In other words, they know from experience that certain properties from certain banks or listing agents simply will not accept their offers so they don’t even make the offers. 

The secret to success in the real estate business is making offers.  The problem is that most investors use the same offer process when dealing with sellers directly and they are missing some huge opportunities if they just knew how to create alternative offers that don’t require cashing out the seller.

Ask yourself these two questions:
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Forgotten depreciation deduction a major tax issue

North Carolina Real Estate Investors Association

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Real estate investing provides many tax benefits, and depreciation is one of the biggest. It’s also one of the more misunderstood.

Depreciation lets you deduct a portion of the cost of the investment each year for the length of its IRS-designated life span.  The depreciation computation is figured based on the value of the improvements, not on the land underneath the improvements.  This necessitates that you be able to determine the value of the land and the value of the improvements.  This determination is generally included in the multitude of closing documents you received when buying the property or found on the county real estate tax website.  It is essential that you keep your closing documents.  There are additional costs that can be expensed and loan costs that must be amortized involved in the closing itself.

A recent client case provides a good example for this deduction and how it can be forgotten.

Joe, an old Army buddy into my office asking for help with his taxes.  He had done his taxes up to this point as he had a pretty simple tax situation but about two years ago he moved and turned his old primary home into a rental property.  The first year of owning his home he had done his taxes and he had read some articles about depreciation and expenses that had gotten him thinking that maybe he had done something wrong on his taxes so the following year when his taxes were due he came to me make sure everything was correct. 

I review
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What is Wholesaling?

Minnesota Real Estate Investors Association, Inc.

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There is a lot of confusion out there with newbies and some seasoned investors as to what exactly Wholesaling means.  The easiest way to describe this is to look at the Minnesota State Statue: 82 REAL ESTATE SALES REGULATIONS Sub 55 Definitions. Condensed Version: You cannot sell a property for another for a fee without a real estate license.  So the question is, as a wholesaler, what are you selling?  If you have a property under contract, you can sell your rights to the contract, not the property.  This is done via an assignment agreement which allows the assignee to step into your place as the buyer.  That is the basics of wholesaling. 

Some states actively go after real estate investors for incorrectly wholesaling.  These investors get themselves into trouble because they can’t explain legally what they are doing and therefore say the wrong things, like I am trying to find a buyer for the seller.  That shows intent, and as the previous FBI Director James Comey famously explained, it comes down to intent.

The problem is that your true intentions may not reflect your stated intentions because you don’t understand the legality of what you are doing.  If you just change what you are saying, to reflect your true intentions, then you will avoid a lot of aggravation and harassment from the state.
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