Jan 30
As we are in an industry that many of us have or had mortgages, it is probably a good idea to keep an eye on your credit report for a while, again…
 
 


The server, running an Elasticsearch database, had more than a decade’s worth of data, containing loan and mortgage agreements, repayment schedules and other highly sensitive financial and tax documents that reveal an intimate insight into a person’s financial life

But it wasn’t protected with a password, allowing anyone to access and read the massive cache of documents.

Jan 28
We have probably all been holding our breath to see if rental property ownership and management would be eligible for the new 20% small business tax deduction.  Last week it became clear that we are.  There are some documenting requirements that take effect this year that you need to learn more about.
From the IRS:
.03 Safe harbor. Solely for the purposes of section 199A, a rental real estate enterprise will be treated as a trade or business if the following requirements are satisfied during the taxable year with respect to the rental real estate enterprise:
• (A) Separate books and records are maintained to reflect income and expenses for each rental real estate enterprise;
• (B) For taxable years beginning prior to January 1, 2023, 250 or more hours of rental services are performed (as described in this revenue procedure) per year with respect to the rental enterprise. For taxable years beginning after December 31, 2022, in any three of the five consecutive taxable years that end with the taxable year (or in each year for an enterprise held for less than five years), 250 or more hours of rental services are performed (as described in this revenue procedure) per year with respect to the rental real estate enterprise; and
• (C) The taxpayer maintains contemporaneous records, including time reports, logs, or similar documents, regarding the following: (i) hours of all services performed; (ii) description of all services performed; (iii) dates on which such services were performed; and (iv) who performed the services. Such records are to be made available for inspection at the request of the IRS. The contemporaneous records requirement will not apply to taxable years beginning prior to January 1, 2019.

.04Rental services. Rental services for purpose of this revenue procedure include: (i) advertising to rent or lease the real estate; (ii) negotiating and executing leases; (iii) verifying information contained in prospective tenant applications; (iv) collection of rent; (v) daily operation, maintenance, and repair of the property; (vi) management of the real estate; (vii) purchase of materials; and (viii) supervision of employees and independent contractors. Rental services may be performed by owners or by employees, agents, and/or independent contractors of the owners. The term rental services does not include financial or investment management activities, such as arranging financing; procuring property; studying and reviewing financial statements or reports on operations; planning, managing, or constructing long-term capital improvements; or hours spent traveling to and from the real estate.

I read this as 250 hours of you, your employee’s or even contractors’ time, which is illogical, but as this is the government … Others, much smarter than I interpret it similarly

From JDSupra:
To qualify for the safe harbor, a rental operation must meet three requirements. In general, it must (1) maintain separate books and records for each rental enterprise, (2) involve the performance of at least 250 hours of rental real estate services each year (which, according to Treasury officials announcing the safe harbor, may be performed by employees or contractors other than the taxpayer), and (3) maintain contemporaneous records regarding the rental real estate services performed. Certain rental real estate arrangements are excluded from the safe harbor, such as real estate rented or leased under a triple net lease, as specifically defined in the proposed revenue procedure.

From Journal of Accountancy

 Under the proposed safe harbor, a “rental real estate enterprise” would be treated as a trade or business for purposes of Sec. 199A if at least 250 hours of services are performed each tax year with respect to the enterprise.The IRS says this includes services performed by owners, employees, and independent contractors and time spent on maintenance, repairs, rent collection, payment of expenses, provision of services to tenants, and efforts to rent the property. However, hours spent in the owner’s capacity as an investor, such as arranging financing, procuring property, reviewing financial statements or reports on operations, and traveling to and from the real estate will not be considered hours of service with respect to the enterprise.

Jan 20
Note, this began as a discussion between myself and another well known Milwaukee investor.
 
I have been an investor in Milwaukee real estate since the seventies. I have seen the market roller coaster many times. My belief for the coming months is:
 
In the next 12-18 months, we will get to near 2008 levels of correction both the mid-upper end of the market and the lower end, with the middle being less affected. Trump could make it worse, or Trump could make it better. It is not in Trump’s nature to not be involved an issue of this potential magnitude.
 
Mid-upper, 350k-1.5M range depending on the location, valued home sales will suffer as interest rates rise and the limits on tax and interest deductibility make them less affordable for those who are currently, marginally able to have such a home. In some markets, such as south FL and NYC, we’ve already seen discounting in the upper segment. It will get worse. Not many people, including politicians, feel sorry for the overextended Yuppie with the leased BMW in the drive of his McMansion that is filled with furniture bought on credit while working at a job he got with his degree that came with a significant college loan debt.
 
Low value (sub 100k) homes will take the hit as wages have remained static and interest are rising. We have been returning to “soft” underwriting. This is a segment where homeowners are more likely to quit when it gets hard. Those owners will fail. Unfortunately, no one in power truly cares when a poor family loses their home. The Dems say they care, but many secretly rejoice as each failure allows them to increase their political base by verbalizing outrage and empty promises of help. The Reps loyalty is more to the bankers than the homeowners. Rand Paul cannot change the world by himself.
 
Learning from the 2008 debacle, the government will prevent the full-on implosion of the middle. Too much economic and political damage if the voting class loses their homes again. But I still expect a 10-20% discount when owners must sell.
 
Throughout my career, when owner-occupied housing has suffered, rents and/or occupancy rise. Beginning in 2008 and continuing to this day, we’ve seen the most robust rental market of my career. In 2005-2007 we had our worst vacancy rates as every good tenant was suddenly, and temporarily, a homeowner.
 
When the economy is terrible opportunities abound.
 
In Carter’s 1980, prime rate was 21% at one point. Nobody was buying, well nobody but me and a few of others. I bought a hundred fifty units in the ten years between 79 and 89 when owner-occupied mortgage rates were consistently over 10% and rental mortgages near impossible to obtain.
 
In 79-89 we bought properties that worked at the 10-12% interest we were paying. I structured my buys so that I survived and made enough to support my family. When rates fell, values increased. Interest rate chart.
 
The longer the downturn goes on, the higher number of tired landlords, or their estates, will be seriously motivated to sell. They will create ways to make to make sales happen. Much of my purchases in 79-89 were owner financed because banks were not even enthusiastic about lending to owner-occupants at the time.
 
The combination of Amazon and remote working arrangements killed most commercial property value. My daughter does something important for AT&T corporate. She has worked from her living room for the past five years, and AT&T sold her former office.
 
The Chinese are selling off their US holdings.  WSJ: Chinese Dumped $1 Billion of U.S. Real Estate in Third Quarter, Extending Recent Retreat (Dec. 4, 2018)
 
Millennials don’t buy homes. They live in mom’s basement, or they rent. 
 
My three-year view:
 
I have good feelings about residential rentals across most segments. This will only hold true if:
• You have fixed rate financing; or
• You structured your purchases so that they still cash flow at 12% interest.
 
I think flipping will be a flipping foolish thing to do for the foreseeable future. Even if you are buying well today, you are buying higher on the price curve than you will be selling at three to six months from now.
 
Keep your powder dry for the next six to twelve months, i.e., hoard cash. Opportunities will abound.
 
Warren Buffet: “Be fearful when others are greedy, and be greedy when others are fearful.”
 
Jimmy Buffet: “If life gives you limes, make margaritas.”
 
Further reading: (A lot of WSJ pay-walled articles, but they do some of the best research.)
 
 
 
 
 
 
Jan 13

The Spring 2019 Apartment Association Landlord Tenant Law Boot Camp is February 9th, 2019. (Less than a month away.)

Even though I know the law well, we’ve sent our staff.  It is good for them to hear the rules from someone else.  Plus if they learn one new thing, it more than pays the modest cost.

Tristan knows the latest law, but that’s the easy part.  He also is one of the most prolific landlord tenant attorneys in Southeastern WI.  That gives him great insights into how the courts are ruling today and what the most recent “Gotcha’s” are.

At $179 for members, it is far cheaper than learning from your mistakes.  Not only does it help prevent costly errors, you also will learn how to screen better and other things that will result in profitability.

AASEW Landlord Boot Camp 2019

WHEN: Saturday, February 9, 2019

WHERE: Four Points Sheraton 5311 S. Howell Avenue, Milwaukee, Wisconsin, 53207 (Across from the airport)

Registration opens at 7:10 AM

The seminar runs from 8:30 to 5 PM with a 30 minute break for a complimentary lunch. There will be a one hour question and answer session afterwards, ending promptly at 6 pm. Many will find the Q&A invaluable, therefore you may wish to arrangements to stay until 6 pm.

Updated to include information from Wisconsin ACT 317!

INCLUDED: 100 plus page manual to help you put what you learn into practice.

 

More info and sign up at LandlordBootCamp2019.com

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