Author: Tim Ballering

Categories
Credit crime

Massive Mortgage Data Breach

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…
 
As reported by TechCrunch
 


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.

Categories
Taxes

Rental Real Estate eligibility for the 20% tax break

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.

Categories
Housing policies Housing Stats Industry stats Investing Our industry Seller Financing Selling Strategy

Where do we see the housing market in 2019, 2020 and beyond.

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.)
 
https://www.wsj.com/articles/wall-streets-big-landlords-are-so-hungry-for-houses-theyre-building-them-11546511401
 
https://www.nytimes.com/2018/12/07/business/housing-boom-how-long-can-it-last.html
 
https://seekingalpha.com/article/4227636-ongoing-u-s-housing-bubble
 
https://www.wsj.com/articles/new-yorks-wealthiest-cut-losses-as-manhattan-real-estate-falters-1543508960
 
https://www.brookings.edu/research/devaluation-of-assets-in-black-neighborhoods/
 
https://www.wsj.com/articles/u-s-existing-home-sales-rose-in-october-1542812683
Categories
5-Day Notice Apartment Association ATCP 134 CCAP Collections crime Evictions Fair Housing Filling Vacancies Lead Paint Leases & Rental Agreements Legislative Support Animals Tenant Responsibilities Tenant Screening WI L/T law

Know WI landlord Tenant Law like a Rockstar

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

Categories
Evicted - Matt Desmond Evictions Housing policies Milwaukee Our industry

Landlords Feel The Loathing

Last week my son sent me the following text:

I read this from time to time and thank you for it

The Public Policy Forum a few months back said Milwaukee’s really short of low-cost rentals. If more people went into the business, researchers said, it could help. Yet Ballering, who’s owned for 32 years, told his son to find another occupation: “It’s such a difficult business,” said Ballering.

“There’s better things to do with your life.”

Not what a city in need of rental housing wants to hear from entrepreneurs who provide it.

Source: http://archive.jsonline.com/news/opinion/59534347.html/

The back story:

My son was nearing high school graduation.   I asked him what his plans were.  He said that he was going to follow me into the rental business.  He was initially upset with me when I told him no.  Today he is happy as a partner at a major marketing firm.

Although being in rental housing has done well for me, it is a harsh business.  There is little to no appreciation for the amount of work and risk involved. Many who enter the industry leave broke and broken. Your properties get damaged, your tenants do not pay and, to quote the late Rodney Dangerfield, we get no respect.

The government, who would benefit from successful rental housing, seldom support us or gives us the tools we need to succeed.  As an urban housing provider, you become responsible for the misdeeds of your tenants, while those who commit crimes are often not prosecuted.

There is an eviction crisis.  Yet instead of putting resources towards the causes, poverty and social issues, those claiming to want to solve the problem are providing more resources to free legal helps so that the nonpaying or disruptive tenant can stay a month or two longer due to an undotted i or uncrossed t.

So, yes, being a marketing professional seems like a much better life.

Categories
Financing Selling

Seller Financing in WI

Earlier today a person asked about rent to own contracts.  I pointed them to my prior post on  2010 WI Safe Mortgage Licensing Act, which restricted most seller financed deals inclusive of many rent to own contracts.

Later in the day, I received the following message from Deb Conrad, Senior Attorney for the Wisconsin Realtors®.  Great news for sellers and Brokers alike.

Hi Tim,

Changes to Wis. Stat. §§ 224.71-224.77 have been made to attempt to remove many of the prior seller financing limitations on real estate agents working with seller financing offers as well as sellers providing seller financing opportunities when selling their own properties. It appears that there is now an exemption for sellers not regularly engaged in the business of a loan originator and who occasionally offer seller financing on five or fewer transactions per calendar year. The same would be true for a real estate broker writing offers on five or fewer transactions where seller financing is offered.

2013 Wis. Act 360: https://docs.legis.wisconsin.gov/2013/related/acts/360.pdf

Wis. Stat. Chapter 224: https://docs.legis.wisconsin.gov/statutes/statutes/224.pdf

Debbi Conrad
Senior Attorney and Director of Legal Affairs
Wisconsin REALTORS® Association (www.wra.org)

Categories
Filling Vacancies Housing Stats Leases & Rental Agreements Office Effectiveness Strategy

Setting the right rent is critical for success

For years I struggled with setting rents. Too much under market rents and the properties did not perform as well as they could. Too much over market rents, they sat vacant and do not perform as well as they could. There seems to be a theme developing here. 😉

To succeed you need to know what others are charging for rent in your very specific market. To that end, we spent a lot of my time, my staffs’ time and effort trying to collect comparable rents.

Ten, fifteen years ago our team manually enter details from for rent ads in the local papers, Craigslist, Zillow and anywhere else we found them. Then we would combine that information with city property records, trying to get an accurate view of what the market rent was for a particular unit. This was expensive and annoying.

We tried freelance data collectors through oDesk (now UpWork) to collect and correlate the records. Better, but still costly and the results still were not exactly what I wanted.

Then I saw promise in AI and Machine Learning, using tools like BlockSpring. Better results, but then Craigs and others started blocking automated collection tools.

We went back to manual data collection where we had to and automated what we could.

We were doing the rent surveys once or twice a year due to the hassle and costs. Quarterly would be better to catch trends.

I had looked at Rent-O-Meter in its early days. It seemed promising but had far less data than even our rudimentary data set.

Last October I relooked at Rent-O-Meter. Wow. We have been using it ever since.  They have both a free version and a free trial of the “Pro” version that goes for about $200 per year.  Setting one rent wrong will cost you more than that. You may want to take a look.

Note: while this may sound like an ad for Rent-O-Meter, it is not.  I’m just a happy, paying customer of theirs.

Categories
Housing policies HUD Leases & Rental Agreements Legislative Maintenance & Repairs Section 8

Smoking will be banned in public housing nationwide August 1st, 2018

https://www.hud.gov/program_offices/healthy_homes/smokefree

This rule is helpful for private owners who wish to ban smoking, as well as offering a marketing opportunity, I guess, for owners that permit smoking.

I agree with HUD on this, the advantages of smoke-free housing outweigh any market advantage of allowing smoking.

https://archives.hud.gov/news/2016/pr16-184.cfm

HUD’s smoke-free rule will reduce damage and maintenance costs associated with smoking. According to the Centers for Disease Control and Prevention (CDC), HUD’s national smoke-free policy will save public housing agencies $153 million every year in repairs and preventable fires, including $94 million in secondhand smoke-related health care, $43 million in renovation of smoking-permitted units, and $16 million in smoking-related fire losses. It is estimated that smoking causes more than 100,000 fires each year nationwide, resulting in more than 500 deaths and nearly a half a billion dollars in direct property damage.

Categories
Code Enforcement Legislative

Appeal on publishing the NFPA fire code for free

In essence, once a standard is included by reference into a law, does that standard becomes public domain. As we discussed with the NFPA and IFC fire codes incorporated by reference into the carbon monoxide detector code, it should.

Public.resource.org wins appeal on right to publish the law [pdf] (uscourts.gov)

Ever operated a tank barge and wondered what power source you would need for your cargo tank’s liquid overfill protection system to comply with the law? Probably not. But if you did, you might consider thumbing through the Code of Federal Regulations, where you would discover that one option is to hook up to an off-barge facility, provided that your system has “a 120-volt, 20-ampere explosion-proof plug that meets . . . NFPA 70, Articles 406.9 and 501-145.” 46 C.F.R. § 39.2009(a)(1)(iii)(B). Dig deeper and you would learn that NFPA 70 is not some obscure rule or regulation or agency guidance document but is instead another name for the “National Electrical Code,” a multi-chapter technical standard prepared by the National Fire Protection Association (the eponymous “NFPA”), detailing best practices for “electrical installations.” Complaint ¶ 66, American Society for Testing & Materials v. Public.Resource.Org, Inc. (ASTM), No. 1:13-cv-01215 (D.D.C. Aug. 6, 2013) (“ASTM Compl.”), Dkt. No. 1, Joint Appendix (J.A.) 86. Parts of NFPA 70 have been incorporated into the statutes or regulations of at least forty-seven states and, as we have just seen, the federal government. American Insurance Ass’n Amicus Br. 5.

A bunch of good comments:
https://news.ycombinator.com/item?id=17579742

And a good summary of the issue:
http://www.dailyreportingsuite.com/ip/news/IPLD20180718

Underlying dispute. The district court had addressed motions and cross-motions for summary judgment brought in two separate but related cases brought by SDOs against Public Resource. In one case, the American Society for Testing and Materials (“ASTM”), National Fire Protection Association, Inc. (“NFPA”), and American Society of Heating, Refrigerating, and Air-Conditioning Engineers (“ASHRAE”) (collectively “ASTM Plaintiffs”), sued Public Resource for both copyright and trademark infringement, based on Public Resource’s copying and dissemination of 257 standards developed by the ASTM plaintiffs that have been incorporated by reference into federal law. Public Resource admitted that it purchased hard copies of each standard, scanned them into PDFs, added a cover sheet, and posted them online. Public Resource also retyped the plaintiffs’ standards and posted them online. The summary judgment motion related to nine of the allegedly infringed standards.

https://www.theregister.co.uk/2018/07/17/appeals_court_copyright_fair_use/

Y’know… Publishing tech specs may be fair use, says appeals court
Expect this one to be argued all the way to the Supremes
In a victory for those supporting open access to technical specifications, the US Court of Appeals for the District of Columbia Circuit on Tuesday vacated injunctions [PDF] that prohibited Public.Resource.Org (PRO) from publishing copyrighted technical standards online.

 

Categories
Evicted - Matt Desmond Evictions Housing policies Housing Stats Industry stats Investing

Evictions: They Are Not The Terrible Landlord’s Fault

A worthy read:

https://www.apartmentheadlines.com/evictions-they-are-not-the-terrible-landlords-fault/