Jun 19

The SBA EIDL loans have re-opened applications on June 15th  for all businesses, including residential landlords. 

Apr 17

I have a number of people ask me about the prior post stating there is an eviction moratorium for Section 8 Voucher recipients. Below is the analysis from the Congressional Research Service.

https://crsreports.congress.gov/product/pdf/IN/IN11320

Eviction and Rental Payment Protections

CARES Act Section 4024(b) prohibits landlords of certain rental “covered dwellings” from initiating eviction proceedings or “charg[ing] fees, penalties, or other charges” against a tenant for the nonpayment of rent. These protections extend for 120 days from enactment (March 27, 2020).

Section 4024(c) requires landlords of the same properties to provide tenants at least 30 days-notice before they must vacate the property. It also bars those landlords from issuing a notice to vacate during the 120- day period. In contrast to the eviction and late fee protections of Section 4024(b), which are expressly limited to nonpayment, Section 4024(c) does not expressly tie the notice to vacate requirement to a particular cause. Thus, Section 4024(c) arguably prohibits landlords from being able to force a tenant to vacate a covered dwelling for nonpayment or any other reason until August 23, 2020 (i.e., 120 days after enactment, plus 30 days after notice is provided).

Section 4024(b)’s and (c)’s protections, however, do not absolve tenants of their legal responsibilities to pay rent. Tenants who do not pay rent during the eviction grace period may still face financial and legal liabilities, including eviction, after the moratorium ends.

What properties does the CARES Act protect?

The CARES Act’s eviction protections only apply to “covered dwellings,” which are rental units in properties: (1) that participate in federal assistance programs, (2) are subject to a “federally backed mortgage loan,” or (3) are subject to a “federally backed multifamily mortgage loan.”

Covered federal assistance programs include most rental assistance and housing grant programs, including public housing, Housing Choice Vouchers, Section 8 Project-Based Rental Assistance, rural housing programs, and the Low Income Housing Tax Credit (LIHTC) program.

A “federally backed mortgage loan” is a single-family (1-4 units) residential mortgage owned or securitized by Fannie Mae or Freddie Mac or insured, guaranteed, or otherwise assisted by the federal government. The term includes mortgages insured by the Federal Housing Administration and the Department of Veterans Affairs, and the Department of Agriculture’s direct and guaranteed loans. The act defines a “federally backed multifamily mortgage loan” almost identically to “federally backed mortgage loan” except that it applies to properties designed for five or more families.

Researchers estimate that roughly 12.3 million rental units have federally backed financing, representing 28% of renters.

Apr 16

The CARES Act includes a 120-day moratorium on evictions, late fees and other penalties for properties with federally backed mortgages (Freddie Mac/ Fannie Mae/ FHA /VA / HUD), beginning March 27th.

These prohibitions also extend to tenants receiving Section 8 vouchers.

Owners of properties with the government backed mortgages or tenants on rent assist are prohibited from serving eviction notices or filing evictions until July 25th. The law also requires a 30 day notice to evict, effectively not allowing evictions until August 24th.

This does not apply to tenants that are not receiving rent assist or living in a federally mortgaged property.

That said we are not charging late fees during this unprecedented time and urge other owners to do the same, because it its the right thing.

In WI you cannot evict or give notice for nonpayment to any tenant until 5/27/2020. The rent is, however, still due.

I will argue that it is in not only the tenants’, but also your best interest to work on payment plans for tenants who fell behind because of loss of income when you factor in the costs of unit turns.

Try mediation if you are having trouble working out a reasonable repayment plan. Maybe try meditation too. 🤔

We posted a bunch of resources to help tenants get through this at: https://apartmentsmilwaukee.com/r/

You can copy the page content into an email to your tenants, and edit out our contact info.

Apr 09

An excellent resource for everything relating to grants, loans, prohibitions and opportunities.

https://library.nclc.org/major-consumer-protections-announced-response-covid-19#content-1

On the rest of the page are some other interesting items.

This includes changes to the Fair Credit reporting act, which may impact some larger owners.

It also changes appraisal rules to allow appraisals without interior inspections and links to the agencies’ memorandums.

Apr 09

As an industry, rental housing providers must be present to PREVENT harmful legislation, because it is much more difficult to be made whole after the fact.

If the government does something that causes a large number of owners to fail, those owners will not have financial resources to fight back. They will be merely trying to feed their families.

This is not just bad for the owners that lost, but bad for tenants as well. In the years after the 2008 crash, there was a significant consolidation of rental ownership in Milwaukee. The city went from around 36,000 individual owners down to ~23,000 at a time that homeownership plummeted. Today Milwaukee has 41.8% owner occupancy. Nationwide that number is 65.1%.

Consolidation and owners doing what they could to survive the ’08 crisis has driven rents up significantly.

Those owners that come out of 2020 intact will likely be stronger than today. But not necessarily as municipalities will suffer more financially this go-round than in 08.

Owners that don’t fare well in the next few months will continuously be looking over their shoulders, hoping Jeff Bezos’ latest robot doesn’t take their job at the Amazon warehouse.

Or our government can keep printing trillions of dollars of new money and when end up like Venezuela where a quart of milk costs 4,200 bolivares, 11% of the monthly minimum wage. In 1990, a VEN bolivar was nearly equal to USD.

Hyperinflation, while bad for working folks, is good for those who enter it with assets and debt. Your debt remains in old dollars that you are paying off with new, cheaper dollars. Your assets acquired before the inflationary cycle will rise in value.

Look at what happened in the US during the late seventies and early eighties with annual inflation and interest rates on standard bank loans hit 18% in 1980. I was buying everything I could get my hands on. It was a risky, but good play when interest rates corrected and I could refinance at low rates like 12% APR. Yes, you can make money on rentals financed 90% at 18% APR. But you do have to pay almost nothing.

Look at average new home prices Dec 1977, when I started in real estate, $52,700 to Dec 1987 at $111,800.

Then look at historic interest rates. They were “cheap” in 1975 at 8.8% and cheap again in 1986 at 9.3% with a belly of 18.6% early 1981.

Yes, I do laugh when I hear investors fretting over half percent fluctuations in rates.

I’ll end this overly long post with there will be a huge risk to some, but also huge opportunities for others in this economy that we’ve never seen before and have no idea how it will turn out.

Feb 20

An amazing story of the lead up to the housing bubble

http://www.workingre.com/interview-appraiser-who-brought-down-countrywide/

Among the many firms and individuals who acted irresponsibly, and maybe criminally, perhaps none did so with such flair and recklessness as Countrywide Financial.  Before its rescue-sale to Bank of America (BOA), Countrywide was the largest mortgage lender in the United States.

Nov 28

In 2006 a well dressed thirty-something guy showed up at my office to talk real estate investing. I always enjoy hearing others’ opinions.

We start talking about debt. He would leverage the entire purchase or even more if the bank would give it to him. “In the long term, the market only goes up.” he boldly proclaimed. My opinion is that while debt is necessary, particularly at the beginning of your career, too much debt is deadly.

He pulls out his laptop and opens Excel and shows me how terrible my cash on cash yield was. His return was infinite, as he was 100% or more financed. I jokingly said, “Soon you’ll be richer than Bill Gates” to which he replied seriously, not that rich, but very wealthy. He also tried to sell me a copy of his Excel spreadsheet so I too could be leveraged rich.

By late 2008 the sharp-dressed kid was busted out. Yet, despite my “terrible” yield, I’m still here. Sometimes fancy Excel spreadsheets can get you into trouble.

Nov 27

Decades ago one of the people I considered a mentor told me: Pay $100 a month extra principal on the property with lowest mortgage balance.

When that property pays off, pay the mortgage amount plus the $100 towards the property with the next lowest balance and so on.

I argued that the money should be put towards the loan with the highest interest.

He said ‘Cash flow is king. Without cash flow, the rate of interest doesn’t matter, you’ll go broke.’

Ten years later I thanked him. He said ‘I wished I would have followed my own advice.’

Oct 29

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)

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.

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