Sep 14

Yesterday I attended an all day Crowdfunding seminar held by Venture Hive,  a Startup Incubator and Accelerator located in downtown Miami.

The main speakers were Jason Best and Woody Neiss from Crowdfunding Capital Advisors. Neiss was the founder of FlavorRX, a company that created the flavor additives that are available for a pharmacist to add to kids liquid prescription meds so your child will actually take them.

Why do these guys matter? They are the coauthors and promoters of Title III of the 2012 JOBS Act (overview of Act) that allows for equity and debt crowdfunding.

I was really surprised at the quality and depth of the presentation. Both guys were engaging speakers.

The day started off with Jason speaking about the political process and how both parties tried to pull them to “their” side. They resisted those forces and in doing so the bill received bipartisan support, changing SEC rules that dated back to 1933 and 1934. There is a lot to be learned from them on political success.

What is crowdfunded equity? I’m sure most of us are at least basically familiar with how stocks work. You pay a few hundred dollars and now own 1/1,000,000,000th of General motors or some such thing. If GM does well the value of your portion of the company goes up. If they fail and the government has to bail them out your stock value plummets or disappears completely.

Crowdfunding equity is similar but for smaller offerings with a cap of $1 million per year per business. Investors need to be “accredited” (see below) and are limited to how much each investor can invest. Those limits are 10% of their income/net worth, up to $100,000, for investors with more than $100,000 of income or assets and 5% for those with income and assets less than $100k. Everyone is permitted to invest $2000 per year regardless of income.

You are required to use an approved platform for the offering, think of something like Kickstarter, as well as a licensed broker-dealer to promote it

Regulation A+ has changed to allow for offerings up to $50 million per year. Only accredited investors may invest, but now offerings may be offered and sold publicly. There is a ton, read expensive, paperwork involved in a Regulation A+ offering.

The interesting thing is using these tools for debt. So rather than give up a portion of ownership, you can crowdfund debt, i.e. mortgage money.

Manhattan Attorney Douglas Ellenoff presented via video feed.   His presentation was on the ethics requirements and how painful it is to get it wrong.

Ellenoff is a founder/principal in iDisclose.com, an online tool for creating the required SEC disclosures.

He also is a founder/principal in LexShares.com, an investment platform for commercial litigation.  You can think of this in the context of the recent case where billionaire PayPal co-founder Peter Thiel took out his arch enemy Gawker media by funding Hulk Hogan’s litigation against Gawker.

The real use of a litigation equity tool is in allowing cases that would make a difference be heard despite the cost involved being too great for any individual to cover.  For example,  you have a  case that could change our industry.  There is so much at stake you realize that if you win, your opponents will appeal, perhaps all the way to the US Supreme Court.  How the heck do you afford a case that will cost perhaps hundreds of thousands of dollars or more?  This is where litigation investing comes in.

So what does this mean to us in rental real estate? Let’s say you found this great deal on a $4 million property. But there is that sticky wicket of the $800k downpayment. Something like this could conceivably work, although those numbers are at the outer edge and realistically would impossible to achieve, at least until you had a couple of successful offerings. But I see this as viable for smaller deals, allowing small investors to be in properties that they otherwise could not.

Heck, with Reg A+ you and your buddies could conceivably buy something really big. A $50 million down payment would go quite a ways.

If you are thinking about giving crowdfunding a go, be prepared to spend a lot of time learning the ropes and a bit of money getting the legalities correct.

A couple of mainstream articles on real estate crowdfunding

Inside the Real Estate Crowdfunding Land Rush

Crowdfunded Real Estate: Should You Jump on the Bandwagon?

What is an accredited investor?
It is a person with a net worth of at least $1 million, excluding the value of their primary residence, or have income at least $200,000 each year for the last two years (or $300,000 combined income if married) and are expected to make the same amount this year.

May 01

Yes.  If the property was previously weatherized and received a cert, all you have to do is record the satisfaction.  If not then you must get the certification.

If you are not sure, search for the property at:

http://dsps.wi.gov/Programs/Industry-Services/Industry-Services-Programs/Rental-Weatherization/Rental-Weatherlization-Database/

Not that the search has a few misspellings of Milwaukee, so check all of them.

If it is certified and you do not have a copy and the cert was not previously recorded get the format receive a duplicate at:

http://dsps.wi.gov/Documents/Industry%20Services/Forms/Rental/SBD-10708%20RentalWeatherizationOrderSatisfStipWaiver.pdf

Check the box for “Request for Duplicate of a Previously Issued Certificate of Compliance.”  There is a $50 fee, which is less than the cost of a new DILHR inspection.

Feb 27

Governor Walker is scheduled to sign AB568 into law on Monday 2/29/16.  Link to the text of the new 2016 Wisconsin Landlord Tenant  law, ACT 176   This is the third major revision to WI Landlord Tenant Law in three years.

It will take a while to digest all the implications of the new bill, even for those of us who watched it go through the legislative process over the last six months or so.

Some of the highlights:

  • The new law allows the termination of a tenancy for criminal activity. Drug dealing is one of the crimes you can evict for, but simple possession or use of drugs is not. Politically, allowing possession was necessary. But it is still disappointing that owners that wish to, still cannot expect drug free housing.  With this new tool to address problems  year leases are practical in more situations than they are today. An advantage of leases is less turn over and that should make neighborhoods more stable. Keep in mind that the Wisconsin protections for domestic abuse victims remain in place.
  • Another change affects month to month tenancies – The ability to use 5 Day notices for breaches.  Now when the tenant shows up with a pit bull you can respond with a 5 Day instead of a 14 Day.  An advantage to the tenant is they can correct their mistake and not lose their home.  This may also permit the including of late fees and other charges that the tenant owes on a 5 Day notice.  I will get clarification on this.

There are a bunch of changes that should help keep local governments a bit more in check.  This legislation:

  • Prohibits  rental property inspections except upon a complaint or as part of a program of regularly scheduled inspections conducted in compliance with state or federal law.  Think fire inspections.
  • Dramatically changes “Reinspection Fee” by limiting the the escalating fee scheme as well as allowing fees only when there was an actual, physical inspection of  the property.  Currently these fees double every 30 Days until they are six times the original fee, plus often there is no actual inspection associated with the fee. This is important as many of the abandoned and foreclosed homes in my neighborhoods appear to have ended up in that state in part due to fees imposed by Milwaukee.  The fees imposed these properties also make it harder for someone to come in, buy the property and put it back in service.
  • Prohibits rental property certification or licensing  schemes unless the requirement applies uniformly to all residential rental property owners, including owners of owner-occupied rental property.
  • The law still allows for programs such as Milwaukee’s Property Recording Ordinance, but most likely they will no longer be able to charge a fee.
  • Prohibits an occupancy or transfer of tenancy fee on a rental unit.

Time of Sale protections

  •  The bill prohibist local regulations with respect to taking title to or occupancy of property.

The new law also changes things with regards to sprinklers, historical buildings, trespass and towing.

Stay tuned as we get more information on what these changes mean to us and what lease language will be updated.

Jan 26

 

This past week, taking advantage of the moderate weather, we began our annual exterior survey of our properties a bit earlier than normal. We walk around the exteriors of all the properties to set a prioritized project list for spring/summer 2015.

The neighborhoods we operate in are the near Southside, from just north of National to Cleveland, 1st to 36th.

While the primary focus is reviewing our properties, we also get a good sense of what is happening generally in the neighborhoods.

If this was a rock band I would have called this the “Fresh Mud and New Green Board Tour” It was absolutely surprising how many properties have been bulldozed and how many more properties are boarded and abandoned since doing the fall review in Sept/Oct of last year.

Anyone who tells you the real estate market on the near Southside has or is rebounding from the 2008 housing bubble hasn’t been out much. 😉 I wrote about what I was seeing in the past  and again here.  It is much worse now.

Many of the new board ups are nice looking properties. However as they accumulate city “reinspection fees” and fines they get to the point they cannot be sold and languish until they are stripped of all value, foreclosed upon by the city for taxes and ultimately razed.

But at least the city was able to tack some fees on it. Fees that they never collected because when the City becomes the owner the only thing left to do was bulldoze  them. (The one pictured in the link is now a mud lot).  Many of these are Zombie Houses

We are seeing sale prices in Milwaukee that make Detroit almost look like a healthy market.

The sales below are listed in the Journal’s Recent Deals sales listing

$11,000: 2356 W Becher St – MILWAUKEE (01/06/15)
$4,000: 2328 S 4th St – MILWAUKEE (01/15/15)
$1,000: 1962 S 16th St – MILWAUKEE (01/02/15)
$3,375: 4624 N 29th St – MILWAUKEE (01/13/15)
$2,850: 323 E Chambers St – MILWAUKEE (12/05/14)
$2,625: 2904 N 16th St – MILWAUKEE (11/24/14)
$37,000: 3410 S 1st PL – MILWAUKEE (01/16/15) — a pretty nice neighborhood.

Oct 10

Milwaukee is preparing to expand its mandatory Residential Rental Inspection Program, i.e. landlord licensing.

If you own rental properties in Milwaukee, it is imperative that you listen to this to make future investment decisions and to prepare for the future in general.

The Apartment Association was represented at yesterday’s hearing by Attorney Heiner Giese.

Link to hearing video

Click on item 15 or scroll to 2:03:40 if you want to listen to the background and stats from Commissioner Dahlberg.

The AASEW testimony begins at 2:30 into the hearing.

Link to AASEW written comments

Link to DNS PowerPoint (as PDF)

Listening to the hearing you get a good feel for which Aldermen appreciate our work and financial investment, and those who don’t.  Aldermen Perez and Donovan clearly understand the difficulty of our industry. Alderman Donovan’s email asking the proposal be held.

I urge you to speak to the Aldermen that represent the area where your properties are located.  Explain to them the challenges and hard work that you face on an ongoing basis. Also point out how DNS does not evenly enforce codes, but holds rental properties to a different standard.

If you are a Southside landlord, I am setting up meetings with both Donovan and Perez.  If you have properties in either District please email me with your concerns, whether you are interested in attending the meetings and which District your properties are located in.

Finally, if you are not a member of the Apartment Association, you should consider joining.  For $99 a year you not only will learn a lot about how to be a more effective and profitable landlord, but a portion of your dues goes to fight things like this.  More information on the Association  or join online


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