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

May 26

The Mayor and head of DNS discuss the “zombie” housing problem in  this Milwaukee Journal article.  The article is interesting, the comments even more so.

“City officials define [zombie housing] a bit more precisely: when title to a property remains with someone who believes he or she has lost the property as a result of foreclosure. “

“Both Dahlberg and Barrett say they don’t understand why banks allow the problem to proliferate. “

While zombie housing seems to be a new phenomena to the city officials, we discussed it since at least July 12, 2009.

https://groups.yahoo.com/neo/groups/ApartmentAssoc/conversations/messages/11702

https://groups.yahoo.com/neo/groups/ApartmentAssoc/conversations/messages/11828

http://justalandlord.com/?s=zombie

At that time I predicted the ordinances that had just been passed to make lenders more accountable would actually result in many more properties abandoned by both the owner and the lender.

The city also makes matters worse through reinspection fees.  I’m sure they think this is a cash cow, but it is a further cause of the abandonment problem.  On the front end these fees force marginal owners into failure and on the back end they make it less likely the lender or owner can sell the property.  Banks that control foreclosures in Milwaukee have adopted a policy of not paying taxes until the property sells.  When they receive offers they run title prior to accepting offers. Too many fees and they let the property revert to the city.

This was the case with two singles on one lot that I made an offer on a couple of years ago.  Bank ran title and rejected the offer due to reinspection fees (the front house was owner occupied, there was a sewer back up that they could not afford to fix and suddenly they were being billed $375 a month)   The city then foreclosed on taxes, the property was stripped of metal, druggies used it as a dry place to get high and finally they started the one house on fire, that in turned burned down a neighboring house, taking it off the tax roll too.  All along the city has had to mow the yard, shovel the walks, reboard it as it kept getting broken in.

Here is a post on how the city’s ordinances, no matter how well intended or logical on the surface, are actually contributing to the problem.

May 11

Wolf Richter writes:

 

Steps in the Fed, and trillions of dollars get printed and handed to Wall Street, and asset prices become airborne, and Wall Street jumps into the housing market and buys up hundreds of thousands of vacant single-family homes, drives up prices, and armed with free money, shoves aside first-time buyers and others who would actually live in these homes, and turned them instead into rental units. Now in over 1,000 cities, prices are, or soon will be, as high as they were at the peak of the last housing bubble.

The difference? Last time, all that craziness was called a “bubble” with hindsight. This time, it’s called a “housing recovery.”

If you are planning to buy now and catch the rising market you should read this and think 2006…

Apr 30

 

Bloomberg reports on a case in CA where  Deutsche Bank is being sued for evicting the tenant of a foreclosure in violation of the federal Protecting Tenants at Foreclosure Act of 2009

Rothschild, legal director at the Western Center on Law and Poverty, said the January ruling established that tenants can take owners who acquire properties through foreclosure to state court for violating protections Congress afforded renters under the 2009 Protecting Tenants Against Foreclosure Act. The law doesn’t give renters the right to sue in federal court.

An attorney for the United Trustees Association states:

The overly broad decision may lead to a proliferation in lawsuits for breach of the lease imposed upon purchasers at a foreclosure sale. With no prior knowledge, a purchaser at a foreclosure sale now may be burdened with a lease with unlimited combinations of potential contractual obligations ranging from unilateral renewal rights to mandatory substantial improvements to the property.

All of this could make buying an occupied or recently vacated unit a dicey situation.

Jun 17

Two articles caught my attention today.  The first from the Calculated Risk blog:

As more inventory comes on the market, buyer urgency will wane and price increases will slow and even decline seasonally in many areas this winter. IMO this will be another step towards a more normal housing market.

The second from the Wall Street Journal:

Although rates are rising, fears that this will derail the housing recovery are overblown. There is still plenty of demand for the housing market’s limited offerings before the word “bubble” should enter the discussion

 

 

 

Jan 05

 Real Estate Ideas for 2013

What can be done collectively to improve our businesses, save costs or generate additional revenue?

On January 1st I posted a list of ideas that I had that some of us could consider to collaboratively work on.  I intend to pursue one or two of the ideas presented and may entertain partnering with the right person or persons.

This post is the forth of my more in depth notes on the ideas.  I will post others over the next week or so as time permits me to clean my notes into coherent sentences. If any of the topics interest you comment either on the list or directly to me at:Tim@ApartmentsMilwaukee.com


Part Four: 

Group purchase of a distressed block or two

There has been this wild idea floating around in my head for years. Long time AASEW member Carl Baryl and I spoke of this many times during the early 90’s. Acquiring a distressed block with a group of active owners and turn it around for fun and profit.

So how would this work?

Choose a very small geo area of Milwaukee. Think something on the terms of both sides of the street for a block or two maybe three at the max. It should be depressed, as in make Detroit look like a nice place to live, depressed. Apologizes to Detroit, but many people know of Detroit’s challenges and fewer of similar challenges of Milwaukee.

Yes, unfortunately, there are many areas like this in Milwaukee and the numbers are increasing as foreclosures work their way through the system.

Oh, you read in the Journal that the foreclosure mess is just about behind us?  They may be correct in a overview of SE Wisconsin, but a walk though the neighborhoods will tell a different story in the City of Milwaukee There are actually more, not less properties sitting vacant and obviously abandoned in these areas than when I first wrote about walking the neighborhoods.

A highly visible face block would be best – something that faces the freeway, a school, a major road, shopping area etc.

Then assemble a group of investors to buy the available, preferably vacant & abandoned, properties in the identified area.

This could be done either as a partnership with all owners having an interest in all properties or as an alternative owners would each have individual ownership of their properties, with a homeowner association type mechanism in place as governing bylaws of the project. I am thinking of one standard screening criteria, perhaps a lawn service and other such bundled services.

Partner with a neighborhood group to provide services to the owner occupants. All aspects – crime, trash, maintenance, throw in some owner occupant foreclosure prevention and even some social help.

Then we work our butts off to turn that or those blocks around. Use this as a best practices testbed, putting private, neighborhood and public efforts and resources into a turn around.

Personally, for me to participate the project would have to be on the Southside (8th and 12th Aldermanic Districts) as that is where my interest lay.  Others may see areas of the Northside that would offer the biggest bang for the buck.

Choosing the correct first block is very important. There are five potential areas I have in mind today. It would take a bit of work to make a final selection. Considerations would be how many bank and city owned properties ( more the better ) how many rental owners we know and their potential level of cooperation. (again more the better ). My preference would be a neighborhood I currently have a presence in, of course, because there would be an advantage for me. However three of the five target areas I’ve selected are not on blocks that we own houses.

Pretty simple eigh? Of course not.

Doable? Absolutely. Worth the effort? Either yes, or don’t bother doing it. This should result in increase rents, occupancy percentages and resale values.

The outline

Organize the existing property owners; everyone – owner occupants, rentals and commercial properties.  Then go at it and buy everything else that is available; vacant land, city owned and banks that are holding etc.

We pitch the idea based on benefit rather than strong arm people to participate. If our initial selection doesn’t result in willing participants we move on to block selection two.

We have our neighborhood group partner find and apply every grant, resource available for both rental owners and the owner occupants in the target area.

The realities of the project

This project would require a lot of work and certainly a bunch of cash as you are not going to typically finance something like this. The City of Milwaukee, despite gaining a benefit from the efforts, will not make it easy.  Having bought a bunch of foreclosures over the past couple of years and putting a bunch of effort into making them solid rentals I can attest to some of the pettiness that goes on.

There are success stories in a similar vien.

Bill Doyle of Milwaukee Lead fame did it with northern Bayview.  On a larger scale, Tony Goldman in SOHO NY, South Beach and Wynwood, Miami, FL.

 

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