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RE Investment News


MAREI.ORG/CALENDAR

THE CALENDAR NOVEMBER MEETING SELF DIRECTED RETIREMENT PROBLEMS & SOLUTIONS Developing a strategy in order to appropriately save for retirement is a necessary action in today’s world. For the past 30 years, Americans have been following a method to save for retirement that is growing outdated. Join us as we welcome Nathan Long, CEO of Quest IRA to the Tuesday, November 13 MAREI Meeting. He will share a much better way to grow your retirement through real estate and real estate lending using your self directed IRAs , 401ks and other accounts. Register to attend at www.MAREI.org Want to learn more? Be sure to catch a webinar or two through out the month from Quest. Check out their IRA Fun Cruises through out the year and be sure to mark your calendar for January 18th—20th for Quests Online SDIRA Boot Camp. Be sure to watch MAREI for more information. Mailing Address: 6709 W 119th #332 Overland Park, KS 66209 Phone: 913-815-0111 Web: MAREI.org Web: MAREIMember.com Email: Kim@MAREI.org Views and advertising expressed in the RE Investment News are not necessarily endorsed by Mid-America Association of Real Estate Investors. The information contained within should not be construed as a reco mmendation for any course of acti on regarding financial, legal, or ac counting maters by Mid-America Association of Real Estate Investors. Email to inquire about advertising opportunities or membership.

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www.QuestTrustCompany.com

DECEMBER MEETING SPEED NETWORKING TO BENEFIT TOYS FOR TOTS Speed Networking is a much anticipated annual event for MAREI Members. We seat everyone in pairs and give each person about 1 minute for their elevator pitch within your pair and then we move. In the 90 to 120 minutes time frame, on average you can meet 40 new people. We will also share a digital networking board where every attendee can post their contact info and their pitch so everyone else can see it. There is no cost for anyone to register for this event, however at the door we do request that everyone bring a new unwrapped toy, a gift card or make a $10 donation to Toy’s for Tots. Event is Tuesday, December 11th at the Holiday Inn at 8787 Reeder Road, Overland Park, KS. Please register at www.MAREI.org. Doors open at 6 pm, Speed Networking starts at 7 and runs till 9.

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real estate news Photo from Shutterstock.com

Rent Control Defeated in California Rent Control, on the ballot as Proposition 10 in California, was defeated Tuesday. With widespread concern in California about high rents, tenant advocates proposed allowing cities the ability to expand their ability to put caps on rents as necessary. Opponents worked hard to spread the message that allowing rent control to spread would take many housing units off the market, making things worse for tenants. More than $100 million was spent on the fight over Proposition 10, with opponents spending more than $76 million and backers shelling out about $26.2 million, according to state campaign finance records. Opponents included not only major landlords operating in California, but also the California Association of Realtors, Blackstone Property Partners, Equity Residential and Essex Property Trust. Landlords across the country including those in the Kansas City Metro area need to form coalitions with similar groups in their own state to gear up for local fights against the expansion of rent control measures as well as other regulations affecting the owning and renting of property.

Landlords Fined $2.25 Million for Illegal Airbnb Page 4

Two landlords who own 14 rental units across 17 apartment building ignored local laws and rented units out through Airbnb illegally. The city sued the landlords and won and the landlords agreed to stop renting their units short term. However, the landlords continued to rent the units out and after a painstaking two-year investigation the city found the landlords violated the law more than 5,000 times by booking more than $900,000 in short term rentals. So it was back to court and now the huge fine. Cities across the country have been seeking regulations to the short term rental industry partly because the hotel industry is asking them to, but also because of the cost of rental housing. For every unit that is converted to short term rental housing, that is one more unit taken out of the rental pool that further increases the cost to long term tenants. Once way to alleviate this problem is by regulations on short term rentals. For investors considering short term rentals in some of their units, be sure to investigate local city and state regulations on licensing, permits, and requirements as well as taxes and fees that must be paid.

Tenant Discrimination Insurance Educated landlords take the time to do the right thing. To screen properly. To keep their business profitable. But from time to time, in to-

RE Investment News


day’s political environment, they could find themselves on the wrong side of a tenant discrimination case. That’s why Arcana Insurance offers their Tenant Discrimination Policies. Their program provides industry leading protection for Property Owners and Managers against Claims brought by Tenants alleging discrimination. Learn more at www.ArcanaInsurance.com

Is Your Tenant Insured? Rental Housing Journal reports that according to a new poll from the Insurance Information Institute, only 41 percent of renters carry renters insurance, a substantial difference from 95 percent of homeowners who carry homeowner’s insurance policies. “Many renters underestimate both the value and affordability of renters insurance,” Mendi Riddle, vice president of product and pricing for Nationwide’s personal lines, said in a release. “Not only does renters insurance provide coverage for belongings inside the residence should those items be stolen, destroyed or damaged, but the coverage may also extend to personal items renters keep inside their vehicle. Additionally, renters insurance helps pay for covered damage or bodily injury to others caused by an accident that may occur at their residence,” she said in the release. MAREI Members have two great resources when it come to helping their tenants protect themselves. First are tenant policies from Arcana Insurance and when you use RentPerfect as your screening company, as tenants are approved, renter’s insurance is recommended to them.

RENTAL PROPERTY RED FLAGS In a recent article on Bigger Pockets Andrew Syrios shares some major red flags for investors should watch out for when purchasing rental property and we would take note of these red flags when buying properties to wholesale or to rehab. 1. Properties in a War Zone 2. Terrible Schools 3. Only One or Two Bedrooms 4. Huge Units—Too Much Space 5. Huge Lots and Rural 6. Any Sort of Environmental Problems 7. Tiny Bedrooms or Kitchen 8. Awkward Layouts 9. No Storage 10.Local Governments that Hate You Simply Because You Exist Here in the RE Investment News, we share many of the issues that you as a real estate investor need to know and understand as an investor in our city.

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2019 Residential Real Estate Forecast Report Available The Annual Housing Reports for Kansas prepared by the WSU Center for Housing are published and available to be picked up at the Leawood offices of KCRAR or online at http:// realestate.wichita.edu/ Whether you’re a buyer, a seller or a real estate professional, at times being in today’s housing market can feel like you’re in the middle of a three-ring circus. The Kansas Housing Markets Forecast series is designed to give you the insights you need to sort through the mayhem

and engage the market with confidence.

Code of Ethics REALTORS® are required to complete ethics training of not less than 2 hours, 30 minutes of instructional time within two-year cycles The training must meet specific learning objectives and criteria established by the National Association of REALTORS®. The latest 2 year cycle ends December 31st. There are many options for taking this code of ethics training and for members of NAR the class can be taken online for FREE online through NAR.

September 2018 Market Update Some economy observers are pointing to 2018 as the final period in a long string of sentences touting several happy years of buyer demand and sales excitement for the housing industry. Although residential real estate should continue along a mostly positive line for the rest of the year, rising prices and interest rates coupled with salary stagnation and a generational trend toward home purchase delay or even disinterest could create an environment of declining sales. Closed Sales decreased 6.1 percent for existing homes and 16.7 percent for new homes. Pending Sales increased 7.0 percent for existing homes but decreased 6.2 percent for new homes. Inventory decreased 4.6 percent for existing homes but increased 3.3 percent for new homes. The Median Sales Price was up 3.9 percent to $187,000 for existing homes and 8.2 percent to $373,350 for new homes. Days on Market decreased 13.6 percent for existing homes but increased 6.2 percent for new homes. Supply decreased 4.2 percent for existing homes and 3.4 percent for new homes. Tracking reputable news sources for housing market predictions makes good sense, as does observing trends based on meaningful statistics. By the numbers, we continue to see pockets of unprecedented price heights combined with low days on market and an economic backdrop conducive to consistent demand. We were reminded by Hurricane Florence of how quickly a situation can change. Rather than dwelling on predictions of a somber future, it is worth the effort to manage the fundamentals that will lead to an ongoing display of healthy balance. Details from Heartland MLS & KCRAR.

Realtors remember, Code of Ethics Classes must be taken by 12-31. Page 6

See full report at www.KCRAR.org.

RE Investment News


H. Quincy Long and Nathan Long celebrate Quest becoming at Trust Company.

SELF-DIRECTED How to invest those accounts. From article by Quincy Long with Quest IRA Many people find it very easy to see the benefits of selfdirecting their Roth and Traditional IRAs, SEP IRAs, SIMPLE IRAs, Individual 401(k)s, Coverdell Education Savings Accounts (ESAs) and Health Savings Accounts (HSAs) into something other than the same old boring stocks, bonds, annuities and mutual funds. The central idea of a self-directed IRA is that it gives you total control of your retirement assets. With a self-directed account you can invest your IRA funds in whatever you know best. Strategy #1 – Purchasing Rental Real Estate for Cash. Even the IRS acknowledges on its website that real estate is an acceptable investment for an IRA. In answering the question “Are there any restrictions on the things I can invest my IRA in?” the IRS includes in its response that “IRA law does not pro-

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hibit investing in real estate but trustees are not required to offer real estate as an option.” A Quest Client purchased a 10 unit apartment complex for $330,000 cash. His monthly total rent collection was $5,235. Even after payment of taxes and insurance, his cash on cash return is excellent, and the client believes that the value of the property will increase significantly over time. A discussion of the relative benefits and disadvantages of owning real estate directly in an IRA is beyond the scope of this article, but for those who know how to successfully invest in real estate it is great to know that real estate is an option for your self-directed account. Strategy #2 – Purchase, Rehab and Resale of Real Estate. In this case study, Quest’s client decided not to hold onto the real estate purchased with his IRA. The client received a phone call one evening from an elderly gentleman

who said he needed to sell his home quickly because he wanted to move to Dallas with his son. After a quick phone conversation, it was clear that the price the seller wanted was a bargain even considering the needed repairs. The client dropped what he was doing and immediately headed over to the seller’s house with a contract. The buyer on the contract was the IRA of Quest’s client, and of course the earnest money came from the IRA after the client read and approved the contract and submitted it with a Direction of Investment to Quest. They agreed on a sales price of $101,000. Approximately $30,000 was spent rehabbing the property with all funds coming from the IRA. The property was sold 6 months later for $239,000, with a net profit after sales and holding expenses of $94,000! Strategy #3 – Purchase and Immediate Resale of Real

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Estate (Flipping). The previous two examples show the tremendous power of buying real estate for cash with a selfdirected IRA. However, both of these strategies require a significant amount of cash in your account. How else can you invest in real estate if you have little cash? One of Quest’s clients was able to put a commercial piece of vacant land under contract in his Roth IRA. The sales price was $503,553.60 after acreage adjustments. Using his knowledge of what was attractive for a building site, our client was able to negotiate a sales price to a major home improvement store chain for $650,000. On the day of closing Quest received two sets of documents, one for the purchase of the property for $503,553.60 and the other for the sale of the same property for $650,000. After sales expenses, the IRA netted $146,281.40 from the sale with only the earnest money coming from the account! A word of caution in this case is that if property is flipped inside of an IRA the IRS may consider this to be Unrelated Business Taxable Income (UBTI), causing the IRA (not the IRA owner) to owe some taxes on the gain. Even if taxes had to be paid, it is hard to argue that this transaction was not beneficial to the IRA and ultimately the client! It should also be noted that in this situation everyone involved in the transaction was aware of what everyone else was doing, so there was no “under the table” dealings. Strategy #4 – Assignments and Options – Getting Paid NOT to Buy! Another favorite strategy for building tremendous wealth without a significant amount of cash is the use of options and assignments. One of Quest’s clients put a property under contract in his daughter’s Coverdell Education Savings Account for $100. The sales price was a total of $5,500 because the house had

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burned down. The seller was just getting rid of the property for its lot value since he had already received a settlement from the insurance company and had purchased another house. Our client then used his contacts to find a person who specialized in rehabbing burned out houses. The new buyer was willing to purchase the property for $14,000 cash. At closing one month after the contract was signed, the seller received his $5,500 and the Coverdell ESA received an assignment fee of $8,500 right on the settlement statement. That is an astounding 8,400% return on the $100 investment in only 30 days! Even better, our client was then able to take a TAX FREE distribution from the account of $3,300 to pay for his 10 year old daughter’s private school tuition. In a similar transaction, another client’s Roth IRA recently received an assignment fee of $21,000 plus reimbursement of earnest money for a contract. Strategy #5 – Using the Power of Debt Leveraging. One of my favorite true stories of building wealth in a Roth IRA involves purchasing property subject to a debt. If an IRA owns debt-financed property either directly or indirectly through a non-taxed entity such as a partnership or LLC taxed as a partnership, profits from that investment are taxable to the same extent there is debt on the property. One of our clients used her knowledge of real estate investing and what she learned from a free Quest educational seminar to tremendously boost her retirement savings. After noticing a large house in downtown Houston which was in bad shape but in a great location, our client tracked down the owner in California who was being sued for approximately $97,000 in delinquent taxes on the property. She negotiated a deal with the seller for her Roth IRA to purchase the property for $75 cash subject to the delinquent taxes. With closing costs

her Roth IRA’s total cash in the transaction was only around $3,000. Within 4 months she was able to sell the property for a profit to her Roth IRA of $43,500! Because the property had debt on it and because her Roth IRA sold the property for a short term capital gain, the taxes on the profit were approximately $13,500. Still, using the power of debt leveraging her Roth IRA was able to achieve a 1,000% return in less than 4 months even after paying Uncle Sam his share of the profits! Strategy #6 – Hard Money Lending. Another excellent strategy for building your retirement wealth is through lending. Loans from IRAs can be made secured by real estate, mobile homes or anything else. Some people even choose to loan money from their IRAs on an unsecured basis. As long as the borrower is not a disqualified person to the lending IRA, almost any terms agreed to by the parties are acceptable. In many states there are limits to the amount of interest that can be charged, and loans must be properly documented, but IRA law does not impose any limits other than the prohibited transaction rules. For those wanting to avoid the direct ownership of real estate within their IRA, a loan with an equity participation agreement is often used. Several of my own self-directed accounts combined together recently to make a $25,000, 7 1/2 year, 12% first lien loan against real estate with 6% in points up front. True, this is not exactly setting the world on fire as far as return on investment goes, but I was very pleased with a safe return on a relatively small amount of cash. If I get to foreclose on the collateral my accounts should be able to make a substantial profit, since the land securing the loan was appraised at $45,000. At my office we routinely see hard money loans secured by first liens against real estate with interest at 12%-18% for terms

RE Investment News


ranging from 3 months to 3 years. Strategy #7 – Private Placements. Many of the best opportunities for passive growth of IRAs include the purchase of private limited partnership shares, LLC membership units and private stock which does not trade on the stock market. Let me give you two examples from my own retirement account investments. In one case my 401(k) plan invested in a limited partnership which purchased a shopping center in northern Louisiana. The initial investment was $50,000, and in a little over 2 years the partnership has returned $59,321. Even though the property is debtfinanced the taxes on the profit have been almost nothing since the plan has taken advantage of depreciation and all of the normal deductions. Once your IRA or other plan owes taxes due to debt financing, it gets to deduct a pro rata share of all normal expenses. Another of my 401(k) plan investments is bank stock of a community bank in Houston, Texas. The initial shares were sold at $10 per share. The book value after less than 1 year of operations was $11 per share, and shares have recently been selling to other private investors for as much as $14.25 per share! That is a great return for a completely passive investment, and when the bank finally sells the shares are expected to sell for well above these amounts. Strategy #8 – Owning a Business in Your IRA. One of the most innovative strategies we have seen is the ownership of a business by an IRA. Although neither you nor any other disqualified person may provide services to or get paid for working at a business owned by your IRA or other self-directed account, this does not mean that your IRA cannot own a business. Some companies do market the ability for you to start a C corporation, adopt a 401(k) plan, roll your IRA into the plan, and purchase “qualifying employer securities,”

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but this is different than an IRA owning a business directly. For example, my Health Savings Account invested $500 for 100% of the shares of a corporation which arranges for hard money loans to investors. The company is fully licensed as a Texas mortgage broker. The structure of the company is a C corporation. Since being a mortgage broker is a business operation, profits from the venture would have been taxable to my HSA if the entity formed to own the business was not taxable itself, and the tax rates for trusts such as IRAs and HSAs are much higher than for corporations. While normally dividends from C corporations are taxable a second time to the shareholder, dividends paid to an IRA or HSA are tax free as investment income. The corporation is run by non-disqualified persons who handle the due diligence on the loans and the legal work, as well as by a licensed Texas mortgage broker who sponsors the corporation’s mortgage broker license. Strategy #9 – Using OPI (Other People’s IRAs) to Make Money Now. Even if you have not found the investment strategy of your dreams among the strategies discussed in this article, or if you have no IRA or if you are more focused on making money now to live on, your time spent reading this article can still be of great use to you. For each of the above strategies I have focused on the possibility that your IRA could be the investor. But what if you are the recipient of the IRA’s investment money? Are you a real estate investor having a hard time finding funding for your transactions? If you know people with self-directed IRAs or people who would move their money to a self-directed account, you can borrow their IRA money and virtually create your own private bank! You can also partner with OPI where the IRA puts up the money and you share in the equity for

finding the deal and managing the project. Simply by explaining to people that they can own real estate in their IRAs you may be able to sell more property, either as a real estate broker or as the seller. You can even provide financing for your sales by having OPI make loans to your buyers. Finally, OPI can be a great way to raise capital for your business venture, although you must be aware of and comply with all securities laws. One bank I know of told me that 42% of their initial capital came from retirement accounts! Although you cannot use your own retirement account to benefit yourself at present unless you are over age 59 1/2, these are just some of the ways you can use OPI to make money for yourself right now. A good network is the key to your success. What I have discussed in this article have been some of the more common investment strategies actually used by our clients. The only restrictions contained in the Internal Revenue Code are that IRAs cannot invest in life insurance contracts or collectibles. Almost any other investment that can be documented can be held in a selfdirected IRA. As long as you follow the rules and do not invest in prohibited investments, your only real limitation is your imagination! Want more ideas. Be sure to join us at MAREI on Tuesday November 13th to ask our team questions, learn from Nathan Long who will be speaking and be sure to dig into the training that Nathan and MAREI will be sharing with all who pre -register and attend. Quest also holds several webinars each month that are totally free and be sure to mark your calendar for our 3 –Day Virtual Expo January 18th, 19th & 20th plus our IRA Fun Cruise stopping in Cuba in May. More details at www.QuestTrustCompany.com

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INSURANCE What happens when you have a loss. The first thing that crosses your mind is “am I covered for this?” That’s a great question, because if you have selected the wrong insurance, the answer could be NO. There are a lot of possibilities why you have no coverage; the most common being you attached your investment property to your Homeowner’s Policy and the property is vacant because you are rehabilitating, your homeowner’s policy may deny the claim because the property has been vacant for more than 30 or 60 days. Arcana highly recommends you acquire a separate policy, be it from us or another insurance Company. Let’s assume you have made the wise decision regarding your insurance and have acquired a separate policy; hopefully with Arcana. Now you are ready to file a claim. Arcana

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provides two options from which to choose how best to file a claim. You may email a fillable PDF form to our Claims Department or you may go to our website and file the claim electronically. Your claim is received and set up in our claim system. You will receive a letter acknowledging receipt of your claim which will provide you with your claim number and deductible information. A local adjuster from our independent adjusting company is assigned the claim. They have three working days to contact the designated contact person you have provided. If your property has sustained damage that leaves the interior of the property exposed to the elements, you may make temporary repairs to prevent further damages. You may take some photos of the damages prior to the temporary repairs and

provide those photos to the adjuster upon inspection. Be sure to present any invoices for temporary repairs to the adjuster at the time of inspection. If you have sustained water damage to the interior of the property, you may also begin the process of mitigating the water damage prior to the inspection by the adjuster to prevent further damage. Be sure to document the damages prior to these repairs as well with photos and provide them to the adjuster. If there is fire damage to the property, you will not want to begin any clean up until you are advised to do so. You should only secure the property from further entry. The adjuster will come out and inspect the damages to the property and verify the facts of loss with you or your representative. You may have your own contractor or repre-

RE Investment News


sentative at the inspection if you desire. The adjuster will complete an estimate of the damages. This estimate will be submitted to the adjuster’s supervisor for review. If the estimate appears in order, the supervisor will submit the estimate to Arcana’s Claims Department for a second review. Once the estimate has passed Arcana’s review, it will be forwarded to the insured. The insured may then review the estimate for accuracy and an agreed scope of damages. Once an agreed scope is reached, the initial payment will be requested from our accounting department. Take notice of two specific line items in the summary of your estimate. One is Recoverable Depreciation and the other is Non-recoverable Depreciation. Recoverable Depreciation is just what it says. It is the Depreciation you are entitled to recover once the repairs have been completed. To claim the Recoverable, we require the insured to submit the final repair invoice for review. Once the review is completed, a check request for the recoverable is requested from our accounting department. Nonrecoverable Depreciation is depreciation that the insured may not claim. It is utilized on items which are paid on an actual cash basis as opposed to replacement cost. There are a couple of other items related to filing a claim you should know about. If you are filing a claim for theft or vandalism, you will need to provide a police report of the incident before a claim payment can be issued. In the case of a fire claim, you will need to provide a copy of the fire report prior to any claim payments being issued. Most importantly; know what claims are covered in your Policy and make sure you have a good insurance company to start. As the Arcana team travels around the country visiting NREIA chapters, the first question we most often hear is “What are your rates?” Not about coverage, industry experience, service standards, technology or how do you pay claims? Real estate investors in many cases are still just checking the “insurance box” when purchasing a policy. Often, we hear “I have a good deal!” which

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means they believe they have the best price. The next question I asked them, “Have you ever submitted a claim?” followed by “Have you read your insurance policy?” Most of the time the answer is “no” in both cases. Everyone wants a good deal, including me, but how do you define a good deal? Lower insurance rates don’t necessarily equate to lower out of- pocket expenses related to your insurance program. Payment plans, cancellation provisions and what “isn’t covered” in your insurance policy is more impactful to an Investor’s bottomline returns than merely cheap rates. Wise investors should be looking at every expense related to the purchase and financing of the asset, but as I have mentioned before in this periodical and in speaking engagements to NREIA chapters and other groups, don’t base your purchase strictly on price. If you’re a “flipper”, the rate doesn’t impact the purchase and sale of a home – especially assets purchased and sold within 90 days. It’s the hidden cancellation charges most insurance companies charge like minimum premiums, earned policy fees and short rate cancellation charges that impact overall cost. If your strategy is to hold and rent, then you’re looking for maximum cash flow to fund one’s investment and make a decent financial return for you or your investors. Under the Arcana / NREIA customized program, you truly get the best of both worlds. Listed below are the advantages of the Arcana’s insurance program for members of National REIA. 1. Maximized Cash Flow – No minimum premium charge, No earned policy fees, daily Pro-rate insurance calculation, monthly Inarrears payments with no interest charges, and flexible payment schedules. The following scenario shows how the Arcana / NREIA program is different from most insurance companies. -for example: You purchase a one-year insurance policy through Arcana / NREIAfor $365 and you sell the home on day 30 day of the insurance policy and go online and cancel your policy. The total insurance charge is $30 dollars plus applicable State surplus lines tax which is typically 5% of the

earned premium. This as opposed to the other Policies where you might be facing a three-month minimum payment. 2. No Underwriting – No photos, loss history, or inspections. 3. Maximum Benefits – Replacement cost, All-Risk Coverage with normal exclusions, no Vacancy Clause, Occupied and Vacant rates the same. 4. Industry-leading Technology – 24/7 ordering capability from your computer or smartphone. All accounting records at your fingertips. Dashboard platform to purchase other coverages including builder’s risk, flood, renter’s insurance, tenant discrimination and cyber liability. 5. Great customer service and outstanding claims turnaround. 6. The buying power of the NREIA’s 40,000 plus members give you the best program for the best price, especially for small portfolios or new investors to the market. I also want to bring up another point; the insurance world is no different than you when it comes to expectations on the use of its financial capital. Insurance companies are looking for a reasonable return on their investment. Arcana is a U.S. Insurance Cover holder for Lloyds of London, the largest property insurer in the United States. Less than 80 firms can claim this prestigious title. Recently our underwriters informed us that, overall, the U.S property markets have lost money the past 2 years. Fortunately for our customers, Arcana had another good year, not a great year, but better than most according to our companies underwriting divisions. The U.S domestic insurance companies have also experienced poor results. So, don’t expect the insurance market to reduce pricing any further. If you see lower pricing, be weary and cautious. Do your homework & due diligence. What you think might be a “good deal” probably isn’t. Articles provided by Arcana Insurance found online at www.ArcanaInsurance.com

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JACK FROST Are Your Properties Ready for Winter? Even though the current legislative climate for landlords in many areas is very distracting, don’t let it keep you from protecting your property and preparing for winter. If they take the proper steps before winter comes, many landlords will avoid damage, unnecessary after-hours repair expenses, and lawsuits. These expenses can soar up into the tens of thousands of dollars. Next to improvements that will increase rent, and properly managing your tenant, investing in repair and maintenance avoidance will have the largest impact to your long-term bottom line. If you manage your own properties, you really can’t afford to skip these steps. And if you have a professional manager, you need to verify that their weatherization policies and procedures mimic these guidelines. To be as prepared as possible, there are three areas to focus on: the property, the tenants, and your business procedures. When it comes to preparing your rental property, there are the obvious things like having the gutters

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cleared, roofs cleaned, and providing vent and hose bib insulation covers. If you really want to invest in damage prevention due to winter weather, there are many precautions you can take:

• If you live in an area that has

prolonged periods of freezing temperatures or your water pipes are exposed to the elements, you may consider having electric warmers installed on your water lines. Standard systems are controlled by a switch, but I recommend upgrading to a temperature activated automatic switch.

• After the first heavy rain, you

can have the attic inspected for possible roof leaks that were created during the summer months. A quick roof patch before drywall is damaged or mold has a chance to grow is much more affordable.

• Have all your trees inspected and pruned as necessary. Any trees or limbs at risk of coming down should be dealt with before the ground loosens due to rain, and the winter winds start.

• Make sure that the earth outside

your crawl space vents is below the bottom of the vent and the grade slopes away from the structure. A simple build-up of debris and dirt outside a vent can lead to the flooding of your crawlspace, along with expensive mold problems.

• For a higher tech preventative

measure, you can install moisture meters under your sinks, by the water heater, behind the fridge, under the dishwasher, and behind the clothes washer. The low-cost versions will set off an alarm that someone must be home to hear. This also relies on your tenants knowing how to turn the water off to the line that is leaking. The higher cost option is connected to a water line shut-off valve so that if the meter detects excess moisture from a leak, it will automatically stop the flow of water to that line.

• Verify that all smoke detectors

are in good working order. Christmas trees, decorations, and lights all increase the risk of fires in the home.

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This brings us to your tenants. Are you expecting enough from your tenants when it comes to protecting your rental in winter? Ideally, you will have your tenant’s weatherization responsibilities spelled out in the lease, or a weatherization addendum. It would also be a good idea to send out a weatherization reminder a few weeks before you anticipate freezing weather. At IRC Real Estate & Property Management, we use this opportunity to send our tenants a winter newsletter. We include all their weatherization responsibilities, in addition to some holiday tips, recipes, local holiday events, etc. This has the added benefit of improving the tenants’ relationship with us. There are several things you can require of your tenants during the winter months. Obviously, not all of these responsibilities would be expected of tenants in multi-unit properties, but they are what we expect of our tenants in most of our 1-4-unit rentals. Tenants should:

• Cover all foundation vents. Given that they are inexpensive, I would recommend buying and delivering these to your tenants. Every winter you should verify that the tenant has enough covers. Maybe even give them 1-2 extras, just in case.

• Disconnect all outside hoses,

hose splitters, and water features. Then, of course, make sure tenants have enough hose bib insulators to cover all outside faucets.

• Disconnect washing machine

hoses and place them in the drain line so that both faucets can be left on at a slow trickle.

• Lastly, make sure your tenants know who to call in the event of winter damage.

The last area you should focus on is making sure that YOU are prepared to handle any problems that can arise with rental properties in the winter. No matter how much you prepare your property and tenants, there is always a chance you will have an emergency to handle. If you haven’t planned ahead, then best-case scenario is that you spend a few hundred unnecessary dollars on emergency repair labor in the middle of the night. Worstcase scenario is that you can’t fulfill your responsibilities as a landlord and expose yourself to a lawsuit by the tenants. If you complete these tasks before winter hits, you should be prepared to handle any emergency repair that comes your way quickly, at the lowest possible cost:

• Find two general contractors you

trust and that have 24-hour emergency repair services available. You will want someone that can patch roofs and is an all-around “jack of all trades.”

• Find two licensed plumbers you

trust and that have 24-hour emergency repair services available.

• Find two drain clearing companies you trust and that have 24hour emergency repair services available.

• If you don’t invest in space heaters, find two HVAC contractors you trust and that have 24-hour emergency repair services available.

• Instruct all your emergency re-

ter shut-off valves.

pair contractors to limit their afterhours labor to protecting the property from additional damage and making the unit safe for your tenant. Then have them complete the full repair during regular business hours. If your property is protected and your tenant is taken care of, then there is no reason to waste any more money on inflated afterhours labor rates.

• Notify you if they will be gone in

• To avoid expensive after-hours

• Keep all water inside the unit running at a slow trickle.

• Keep temperature above 62 de-

grees at all times, even when away from home.

• Familiarize themselves with wa-

the winter for more than a couple days. If needed, get their permission or serve a notice of entry to inspect the unit during their absence.

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HVAC labor rates, we purchased some large electric space heaters for residential use. If heat goes out in the winter, then you are required to have it repaired or provide another heat source ASAP. The cost

of you or a handyman delivering some space heaters in the middle of the night is much less than paying a HVAC contractors’ after-hours labor rates. This will make the tenants feel taken care of since you provided heat quickly, and you’ll get to save money by having the HVAC repairs completed during normal business hours. If your rental unit has a wood fireplace or stove, you can also maintain a stockpile of wood to deliver instead of space heaters.

• Lastly, make sure your tenants

know how to get a hold of someone to report an emergency repair outside of your normal business hours. Within our company we contract with a call center company that has our after-hours contractors contact information. You could also incentivize one of your contractors to be available 24-hours and coordinate emergency repairs. Or you can simply give your tenants your cell phone number to call and be sure to have the volume turned up too high before you go to sleep. Winter can be a very scary time of year for a landlord, especially landlords with low-profit margins. If you are willing to put in some work and maybe even a little financial investment, you can avoid most winter emergencies. For those inevitable emergencies, you will be prepared to handle anything that is thrown at you with confidence. Don’t wait until 2:00 a.m. on Christmas morning when a tenant wakes you up with an emergency to find an after-hours contractor. If you get this done before winter and have your 24-hour repair phone numbers easily accessible, you will be back to sleeping soundly after making one phone call. No stress or worrying, just sweet, relaxing dreams, because you can rest assured that your tenants are being taken care of and your rental property is being protected. Good luck this winter, but don’t wait any longer to get prepared! Christian Bryant is President of IRC Enterprises (specializing in Property Management, Evictions, & Residential/Commercial Sales for Investors) and is President of Northwest REIA in Portland, Oregon. For more information visit www.IRCEnterprises.com.

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UNDERSTAND UTILITIES Do your Research Before You Buy As a real estate lawyer for 25 years, I have watched many investors come and go, and some stay and prosper for the long haul. I have helped them with contracts, closings, evictions, contractor troubles and sales, among other things. Each time someone calls me for advice, they have some sort of problem which was either dropped on them or created by what they did or didn’t do. This, combined with my own experiences as a real estate investor, combine to give me a unique vantage point from which to observe real estate problems, and consider how to avoid the avoidable problems and situations, where an ounce of prevention is worth a pound of cure. This is the first of a long series of articles on “Seven Things” about different aspects of real estate investing. Why seven things? It could just as easily be five or ten, but seven is a lucky number, and about seven makes a nice series of articles on each topic. So here we go;

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1: KNOW YOUR UTILITIES. Knowing your utilities means knowing which utilities are paid for by the tenants, and which are paid for by the landlord. A basic rule is that any utility paid for by the landlord will, on average, be consumed more generously by the tenants. I learned that rule the hard way when I had a twelve unit in Squirrel Hill, with central heat. I would drive by in the dead of winter, and the windows on the upper floors were wide open in ten-degree weather, while the big old boiler chugged away and the gas meter spun like a blur. The gas bill was more than the mortgage, and it took me until June to break even on that building. By July, I had to start setting aside a reserve for the next year’s heat, so the building wasn’t worth it to operate. A similar building with individual furnaces in each unit, and gas bills paid by the tenants, rented for only $50.00 less per unit per month. Why? If the tenants pay their own gas bill, they don’t usually leave the windows open

in the winter, and even if they do, it doesn’t affect your bottom line. For the extra $50.00 per unit per month, I got $7,200.00 per year, and paid over $15,000.00 in gas bills for the heat, hot water and gas stoves, plus the electricity to run the pumps to keep the hot water heat circulating. Now I don’t mess around with paying tenants’ heat. If a building is worth owning, it is worth putting in separate gas meters and furnaces for each unit, and giving the tenants the bills for their own heat. For not much more, you can add central air and make your units easier to rent in the Spring and Summer. Knowing your utilities also means making sure the separate utilities in the building are really separate, and tenants don’t heat common areas or parts of other units on their own bills. If the furnace for unit 1 has just one duct in unit 2, or in the common entry or basement, and the Public Utility Commission or the individual utility receives a request for an audit of the

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utilities for that tenant, you will end up with that tenant’s whole bill in your name. The worst case I saw of this problem was a tenant who was a clever law student. Note that law students are not a protected class. He had gas heat and a bill in his own name, but he was never available for the meter reader, and always called in his own readings for the gas meter for almost a year. He had very low bills, but when the meter reader did come in March, and gave the tenant a $2,000.00 bill, he called the utility to do an audit, they found a duct in the basement had come (or been pulled?) apart, and the tenant’s furnace was heating the common basement. The whole bill went into the landlord’s name and was still being litigated with the PUC (utility) two years later. Further, a landlord is not allowed to take a common bill, like a water bill for a single meter on the whole building, and divide it among the tenants. If it isn’t a real separate meter, you must pay the bill and price the rent high enough to cover the bill. Knowing your utilities also means knowing which utilities are publicly provided, by a municipality or munici-

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pal authority, and therefore lienable against your property, regardless of whether the unpaid bill on which the lien is based is in the tenant’s (or former tenant’s) name, or in the landlord’s name to begin with. An electric bill from PP&L or West Penn power (or KCP & L here in Kansas City) is from a private company, and they don’t have the right to lien or charge you for the tenant’s unpaid bill. But if the municipality where you have your property buys the electricity from the utility and resells it to your tenant, that same electric bill now comes from a municipal authority, and if the tenant doesn’t pay, the unpaid bill attaches as a municipal lien against your property. (Like Kansas City Missouri Water) The worst illustration I have seen of this is tiny Pitcairn, PA. There, the water and sewage, electricity, cable and internet are all provided through a municipal authority. If a tenant owes $350 in rent, pays the rent, and doesn’t pay his water, sewer, electric, cable (including services like HBO, cable modems, internet phones and pay per view movies), you could end up with a notice of unpaid bills for that month in excess of the rent you received and eventually a lien against

you for that unpaid amount. I gave up my buildings in Pitcairn after getting a bunch of those notices. Knowing your utilities requires that you verify the information the seller provides on utility costs, too. Many sellers have a tendency to underestimate their seller paid utilities to make a building for sale look like it cash flows better than it really does. The various utility companies maintain actual records of usage, which you should check before you close on the building. Finding out the numbers are wrong before you buy gives you the opportunity to renegotiate the price or buy a different building with better cash flow. Finding out a year after you buy may give you a lawsuit against the seller for misrepresentation, but it won’t change your cash flow right away, even if you eventually win the suit. Bradley S. Dornish is a licensed attorney, title insurance agent and real estate instructor in Pennsylvania. He can be reached at bdornish@dornish.net.

Page 15


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With MAREI Business Members Save time and money by starting with service providers who already know your business. Who can solve problems as they arise to help you get the deal completed on time and for maximum profit. Accountant

Auction Company

Contractor

Coleman Accounting Service Bob Coleman www.ColemanAcctg.com 913-787-0308

Auction.com Rachel Bailey www.Auction.com 816-797-6875

Mid America Tax Planners Ahmad Malik www.Accounting-USA.com 913-210-4765

Building Supplier

Above & Beyond Building Services James Carollo www.AandBKC.com 816-674-6132

Appraisal Ladys Appraisal Service Kathy Allen-Grey www.LadysAppraisal.com 816-678-2794

Attorney Anderson & Associates Evictions / Collections Julie Anderson www.MOKSLaw.com 816-931-2207 Rick Davis Legal Real Estate Law Rick Davis www.RickDavisLegal.com 913-283-8300

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DeMayo Enterprises Wholesale Cabinets Mark Yanda www.DeMayoEnterprises.net 913-980-4260 Joe’s Carpet / Weber Flooring Jerry Ratway www.WeberFlooring.com 913-236-3680 The Home Depot George Neal 816-461-9583 2% Rebate / 20% Off Paint Details in Member Benefits

Hearth Masters Fireplace / Masonry Gene Padgitt www.ChimKC.com 816-461-3665 Genesis Home Restorations Mold Remediation Terry Amerine GenesisHomeRestorations.com 913-270-0812 HCS Restoration KC, LLC Mike Peace HCSRestorationLLCKansas.com 913-731-6537 NuLook Custom Finishes Cabinet Refinishing Carol Baldwin www.NuLookFinishes.net 913-385-2574

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Under Pressure Property Services Rehab, Maintenance, & Staging Dallas Kidd www.MyUnderPressure.com 913-274-9555

North Oak Investments Hard Money Tommy Nigro www.NorthOakInvestment.com 816-249-1001

Insurance

Revolver Finance Hard Money Jeremy Hanna www.RevolverFinance.com 316-880-1611

Agema Insurance Fred Dickinson www.AgemaIns.com 913-543-8116 Arcana Insurance Insurance for Investors NREIA.ArcanaInsurance HUB.com 877.744.3660

Worcester Financial' Hard Money Taryn Kendrick www.WorcesterFinancial.com 816-291-4146

Self Directed IRA

Marketing

Equity Trust Company TrustETC.com/NationalREIA FREE Training 844-732-9404

Constant Contact Email & Social Media Marketing FREE Trial MAREI.org/ConstantContact

Lending Crossroads Investment Lending Hard Money Britton Asbell / Doug Harris www.KCLend.com 913-800-8226 House Traders Monthly Meeting Flat Branch Home Loans Morgtgage Banker Beth Langston FlatBranchHomeLoans.com 816-479-5841 x 1148 Geneva Financial Mortgage Loans Charlie Fitzgerald GenevaFI.com/CharlieFitzgerald (800) 843-8650 Investors Choice Funding Hard Money Scott Ficinus InvestorsChoiceFunding.com 816-668-7223 Longhorn Investments Hard Money Mike Minor www.LongHornInvestments.com 913-209-8630 Merchants Mortgage Mushy Money Susan Aubin www.MerchantsMtg.com 303-514-0815

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Investor Carrot Investor Websites Free Training & Discounts www.MAREI.org/IC Pat Live Answering Service Discounts www.MAREI.org/PatLive

McKinnis Real Estate Turn Key Provider Nick McKinnis McKinnisRealEstateInvestments.com 816-914-2614 KCInvest Investment Properties Scott & Kim & Don Tucker www.KCInvest 913-735-0018 Pride Properties Wholesale Marcus Bray & Matt Bray www.PridePropertiesHomes.com 913-213-5370 Deal Makers Monthly Meeting Property Manager Home Rental Services Paul Branton www.Home4Rent.com 913-627-9543 Lotus Key Homes Loni Louis Bernard www.LotusKeyHomes.com 816-838-7368

Zoom Video Conferencing www.MAREI.org/Zoom

M & M Property Pros Michael & Michele Bellman www.MMPropertyPros.com 816-490-6745

Office Supply

Realtor

Office Depot / Office Max www.OfficeDepot.com Discount Link & Card in Member Benefits Package

Crown Realty Rich Melton RichMelton.CrownRealty.com 913-215-9004

Pest Control

Realty Resource Scott Tucker www.RealtyResourceKC.com 816-284-7844

BedBugTraps.com Stop Bed Bugs Discounts for Members Properties Bridge Turn Key Investments Nathan Brooks www.BridgeTurnkey.com 913-276-4114

Show-Me Real Estate Dan Hartman www.Show-MeRealEstate.com 816-532-6101 Rent Collection National Credit Systems Specializing in Collections www.NationalCreditSystems.com

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Screening Rent Perfect Tenant Screening Plus Heather Johnson www.RentPerfect.com 877-922-2547 Discounts www.MAREI.org/RP

Get Connected: www.MAREI.org

Visit our website for events, recent newsletters, member properties and our business directory.

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www.MAREIMember.com

Escrow Services Inc. Loan Servicing Nationwide www.EscrowServ.com

Visit our Member’s Only site to join, register for events, access benefits and discounts and to post properties.

Title Company

Join the online discussion. Post a property, ask a question, share knowledge and expertise.

Accurate Title Company Dave Green www.AccurateTitleCo.com 913-338-0100 Alpha Title Mary Kellogg www.AlphaTitleInc.com 913-498-8999 Trash Out 1-800-Got- Junk Trash Pick Up www.1800GotJunk.com Discounts in Member Benefits 1-800-JunkPro Trash Pick Up & Dumpsters Clint Pringle www.Junk.pro 816-935-7078 Junk Luggers Eco Friendly Junk Removal Olivia Jones www.JunkLuggers.com 816-905-2204 Get Listed Want to be listed in our directory? For as little as $135 a Quarter or $499 annually, join MAREI as a business member. Details at MAREI.org.

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www.Facebook.com/groups/KCREI

Member Spotlight: Jerry Ratway Weber / Joes Jerry has been coming to MAREI and many other real estate groups to educate on the great products, services and prices at Weber Flooring and Joes Carpet. Joes Carpet and Weber Flooring pride themselves on being Kansas City’s hometown flooring destination since 1976.

WeberFlooring.com

913-238-3680

Jerry has been a valued member over the years. Most recently, his ideas were the catalyst for our virtual auction at our All Star Networking Event to Benefit Harvester’s.

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RE Investment News - November 2018  
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