June 2019
A monthly newsletter published by the Rental Housing Alliance Oregon
rha est. 1927
www.rhaoregon.org
In this issue:
Dinner Meeting ............... page 2 RHA Mark Your Calendar ............................. page 2 President’s Message .... page 3 Why Do Investors Use 1031 Exchanges? ...................... page 4 Dear Maintenance Men ....................................... page 5 Under a Starry Night Event ...................................... page 7 Landlording 101................. page 7 Annual Picnic...................... page 8
Presidents Message Page 3
RHA Mark Your Calendar RHA Dinner Meeting When:
If you register and DO NOT SHOW or DO NOT CANCEL by the Friday before the dinner meeting you will be charged the FULL price of the dinner. To purchase event tickets online visit: www.rhaoregon.org
Wednesday, June 19, 2019 at 6:00pm
Where:
Colwood Grill 7313 NE Columbia Blvd, Portland, OR 97218
Who: Patrick Quinton- Innovation in the housing industry with a focus on strategies for developing affordable ADU’s. Current inefficiencies in the the construction industry. The politics around developing new housing. The obstacles to new ADU development. The promise of business models like Dweller to scale ADU development and housing innovation in general. How Much:
$28.00 per person if registered by end of business June 14, 2019 $38.00 per person if registered after end of business June 14, 2019
For additional Dinner Meeting Information visit: https://rhaoregon.org/event/june-dinner-meeting/ DATE
EVENT
LOCATION
TIME
6/12
Board Meeting
RHA Conference Annex
4:00pm
6/19
Dinner Meeting
Colwood Golf Center
6:00pm
6/27
Mentor Round Table
RHA Conference Annex
6:00pm
7/10
Board Meeting
RHA Conference Annex
4:00pm
7/17
Under a Starry Night Event
RHA Conference Annex & Patio
6:00pm
7/20
Mentor Round Table
RHA Conference Annex
11:00am
DATE
CLASSES
LOCATION
TIME
INSTRUCTORS
6/4
Screening Class
RHA Conference Annex
11:00am
Marcia Gohman w/National Tenant Network
6/7
Screening Class
WebEx
11:00am
Marcia Gohman w/National Tenant Network
6/13
Pest Control
RHA Conference Annex
6:30pm
Cathy Morris w/Northwest Pest Control
6/18
Screening Class
WebEx
7:00pm
Marcia Gohman w/National Tenant Network
6/20
Bed Bugs-Invasion of the Body Snackers
RHA Conference Annex
11:30am
Cathy Morris w/Northwest Pest Control
6/27
Screening Class
WebEx
11:00am
Marcia Gohman w/National Tenant Network
7/12
Screening Class
WebEx
11:00am
Marcia Gohman w/National Tenant Network
7/18
Screening Class
WebEx
7:00pm
Marcia Gohman w/National Tenant Network
INFORMATION
See above for details
See page 7 of this issue for more information
For additional class/event information visit: https://rhaoregon.org/education
2
RENTAL ALLIANCE UPDATE JUNE 2019
www.rhaoregon.org
President’s Message
Spring: a time for renewal…of our rental properties!
Ah spring! The tulips are done blooming, the Rose Festival is under way, the irises are in full glory, and the peonies are…laying on the ground. Peonies are one of my favorite plants, but it can be more than a little discouraging to come outside in the morning after a rain only to see all those flowers collapsed under the weight of a rainwater-filled double bloom. I sometimes feel similarly when I see a poorly maintained housing property. Rental properties are a bit like plants. Each individual needs attention, but the specific needs can vary considerably. I suspect few of us operate our rental properties as “annuals;” we leave that market to the AirBnB, VRBO, and hotel industries. Most of us who are small landlords have singlefamily homes or plexes that are like perennials. We take care of them: we regularly change the furnace filters, check the smoke detectors, vacuum out the dryer vents, and clean the gutters. From time-to-time we all need to make a capital investment to replace a water heater, or floor covering, or perhaps a roof. It’s kind of like the need to prune, or re-pot, or divide bulbs. We invest time and money in our properties to ensure that the property will continue to provide a safe and affordable home for our tenant and a reliable income stream for us. Some properties have unique needs: just as peonies need a scaffold to prevent the blooms from falling over, some older homes in the Portland Metro area will need capital investment above and beyond the ordinary. Some projects are relatively inexpensive with quick returns, like LED lighting upgrades facilitated with financial assistance such as grants or incentives from Energy Trust of Oregon. Other projects, such as whole house re-piping, sewer line replacement, or seismic retrofits, can seem daunting and expensive, but these are the kinds of investments that increase property value, lower maintenance costs, provide a safer, cleaner living environment for tenants, and ensure long-term rental income. This spring is a particularly good time to take advantage of these opportunities for renewal and growth. First, www.rhaoregon.org
given the appreciation of property values in our state over the past decade, most small landlords have significant equity in their properties. With interest rates still near historic lows, borrowing money to re-invest in your rental properties makes sense. Second, the challenge of finding qualified contractors to undertake these kinds of projects has eased considerably. The construction boom of high-rise apartments around Portland is coming to an end, and the current regulatory environment, from inclusionary zoning to statewide rent control to Portland’s relocation ordinance has led many larger real estate investors to look elsewhere. The Portland Bureau of Development Services eliminated four positions at the end of 2018 following a decline in permit applications. Contractors that used to be booked two to three months out are now available to work on relatively short notice. Now is a great time to engage these contractors before they move on to projects elsewhere in the state. I continue to be optimistic about the future for small landlords. We are the small business branch of a significant component of Oregon’s economic engine: housing. As successful small business owners, we recognize when to invest in our capital assets: our properties. So spring forth and attend to your perennials! Ken Schriver, RHA Oregon President
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503-‐242-‐2312
Full FED Service First Appearances evict@landlord-‐solutions.com Small Claims
RENTAL ALLIANCE UPDATE JUNE 2019
3
Why Do Investors Use 1031 Exchanges? by Roger W. Bowlin, Real Estate Transition Solutions
As real estate investors, we are continually looking for ways to maximize a property’s cash flow and return on equity.
One way to do this is to increase the leverage on a property - as long as the “cost of capital” (i.e. your mortgage’s interest rate) is less than the capitalization rate (the property’s Net Operating Income expressed as a percentage of total value). Another method is to “buy up” to a larger property to increase cash flow and tax-sheltering depreciation. The key to this strategy is to employ a tax-deferred 1031 Exchange when repositioning your investment portfolio. Instead of paying tax on the gain and depreciation recapture, this defers the tax, keeping these dollars working for you - essentially creating an interest-free loan from the government as long as investment real estate continues to be held. The Internal Revenue Code section 1031 allows investors to do just that! The popularity of 1031 Exchanges rests primarily in its ability to preserve one’s equity invested in real estate and allows investors to purchase higher value properties or multiple properties with all the proceeds from their relinquished property. Utilization of a 1031 Exchange allows investors to defer both the Federal long-term capital gains at 15% or 20% (depending on one’s income and sale amount), Oregon State income tax at 9% or 9.9% (for any gain in excess of $8,500), depreciation recapture at 25%, and the Net Investment Income Tax of 3.8%. However, it should be noted there are both pros and cons to utilizing a tax-deferred exchange, a sampling of which are detailed in the table.
You may be asking yourself - why would the federal government allow such an investor-friendly opportunity to be included in the Internal Revenue Code? The history of IRC 1031 began nearly 100 years ago, when tax-deferred exchanges were first mentioned in the Revenue Act of 1921. At that time, it was not uncommon for property to be traded directly for other property. (continued on page 6) 4
RENTAL ALLIANCE UPDATE JUNE 2019
www.rhaoregon.org
Dear Maintenance Men by Jerry L’Ecuyer & Frank Alvarez
Dear Maintenance Men: My pest control company has removed a beehive from my property. However, the bees have not left and the tenants are complaining about bees inside their units. I have sealed every hole, crevasse and crack I can find. Yet, the bees still find a way of getting into the units. What is missing or are these bees just too smart? Bert Dear Bert: We have had a similar problem at one of our properties. We also sealed everything we could think of and still the bees found a way in. You may want to look at your roof vents that service the bathroom & kitchen exhaust fans. The bees come down the vent and go into the voids between the ceiling and roof. Most fan boxes are not well sealed below the fan blades. Once they are in the ceiling, it is easy for them to travel to different units, find a hole and drop down into the apartment’s living area. Because the bees may be discovered in an area far from the original entry point, it is hard to track down where they first came in. We now install screening at all bath and kitchen exhaust vent tubes. The material used is 1/8 inch square metal screening and is attached to the top of the vent tube at the roof level. Be sure to extract the hive and any honey you find or you might not only continue to have a bee problem, but an ant problem also. Dear Maintenance Men: I have a bathroom sink that is slow draining. I have already snaked the drain and found no stoppage. When I remove the pop-up assembly and have an open drain, water whooshes down with no problem. However, with the pop-up in place, water backs up into the sink and drains very slowly. Paul Dear Paul: Most bathroom sinks have an overflow hole near the top edge of the sink. This hole serves two purposes; 1: Acts as a safety drain to keep the sink from overflowing should the water rise above a certain level in the sink. 2: The overflow hole also serves as an air vent for the sink when the water levels are above the pop-up plug. The overflow hole allows air to escape through the drain and the water to evacuate more efficiently. What has happened is hair, toothpaste, grime etc. have built-up and sealed off the overflow drain where it exits just below the pop-up assembly plug. Most snakes are too big to go through the overflow drain. Alternatively, a speedometer cable will work great or even a long zip tie will work. Push the cable or zip tie down through the overflow hole at the top of the sink and push any gunk out into the drain. Use www.rhaoregon.org
water to help push the debris out the overflow drain, a funnel works great to direct a good flow of water. If you cannot get the overflow to drain, disassemble the main drain assembly to gain access to the overflow drain exit. Once the overflow drain has good airflow, the sink should drain a bit faster. If this does not solve the problem completely, look at restricting the water flow coming out of the faucet. Use a restrictive aerator to cut down on the GPM of the faucet. Dear Maintenance Men: I am thinking of converting my thirsty lawn into a drought resistant landscape. What recommendation do you have to help me achieve my plan? Dorothy Dear Dorothy: Creating a drought tolerant landscape is a great idea. In the end, the drought tolerant landscape will cost you less money in water and will be easier to maintain. The single greatest consumer of water in your landscape is the turf. Reduce the grass area to ease the burden on water. Xeriscaping is a term for a water conserving landscape. Some of the benefits of Xeriscaping is water saving, low maintenance, pesticide free, pollution free (no lawnmowers) and use of local native plants. You might want to consider using Ornamental grasses, as they are drought tolerant, look great and give your landscape a bit of vertical dimension. Succulents of course are great at conserving water. Flax and Delphiniums Iris are a few perennials to use. Marigolds, Mexican Sunflowers, Phlox and Vinca Passion are Annuals that will work well. As for shrubs, look at Japanese black pine, Mountain currant, Sassafras, Honeysuckles etc and good trees are Acacia, Gray Birch, Monterey Cypress, Eucalyptus, Fig, Juniper Amur Maple to name a few.
Maintenance Tip: If you keep potted plants or flowers on your deck; always elevate the pot with plastic, or terracotta legs to let any water under the pot evaporate. This will help avoid water and rust rings from developing under the pot. WE NEED Maintenance Questions!!! If you would like to see your maintenance question in the “Dear Maintenance Men:” column, please send in your questions to: DearMaintenanceMen@gmail.com Bio: If you need maintenance work or consultation for your building or project, please feel free to contact us. We are available throughout Southern California. For an appointment please call Buffalo Maintenance, Inc. at 714 956-8371 Frank Alvarez is licensed
(continued on page 6)
RENTAL ALLIANCE UPDATE JUNE 2019
5
Dear Maintenance Men CONTINUED FROM PAGE 5
contractor and the Operations Director and co-owner of Buffalo Maintenance, Inc. He has been involved with apartment maintenance & construction for over 20 years. He is also a lecturer & educational instructor and Co-Chair of the Education Committee of the Apartment Association of Orange County as well as being Chairman of the Product Service Counsel. Frank can be reached at (714) 956-8371 Frankie@BuffaloMaintenance.com For more info please go to: www.BuffaloMaintenance.com Jerry L’Ecuyer is a real estate broker. He is currently on the Board of Directors and Past President of the Apartment Association of Orange County .and past Chairman of the association’s Education Committee. Jerry has been involved with apartments as a 1031 Exchanges CONTINUED FROM PAGE 4
Since no economic benefit was realized when property was swapped for property, the exchange was not considered to be a taxable event. Soon thereafter, in 1924, the code was amended to allow only “like-kind exchanges”, disallowing exchanges between different asset classes such as personal property for real estate. The next 60 years were quiet as it relates to 1031 Exchange legislation until 1984 when Delayed Exchanges (traditional exchanges with a 45-day identification period and 180-day close period) were approved as a result of a major tax-court case that began with the sale of second-growth forests right here in Oregon. In the years following 1984, the code has been clarified and slightly modified to allow for Reverse Exchanges and exchanges to and from both TenantIn-Common (TIC) and Delaware Statutory Trust (DST) ownership structures. To give you an indication of the popularity of 1031 Exchanges among investors, in the 10 years between 2004 and 2013, just over $1.3 trillion of property was exchanged (approximately 2.9 million transactions), of which $432 billion was exchanged by individuals (approximately 1.9 million transactions). Tax-deferred exchanges can be applied in several situations depending on the property owner’s investment objectives. Perhaps the most common scenario in which we assist investors is restructuring their real estate portfolio to simultaneously reduce active management, increase cash flow and provide diversification both among property types and geographical locations – effectively staging owners to retire from direct management of real estate without paying tax. 6
RENTAL ALLIANCE UPDATE JUNE 2019
professional since 1988.
A 1031 Exchange is a very effective tool to allow owners to reposition their properties so that their real estate investments match their financial and lifestyle objectives. If there is a gap between the current properties you own and the objectives you currently have, or expect to have in the future, bridging the gap becomes key. Our firm, Real Estate Transition Solutions, specializes in developing Transition Plans designed to align owner’s properties with their objectives. These plans can either take a holistic approach or a property specific approach and serve as a roadmap to navigating the years ahead as it relates to your real estate assets. We are a resource available to the RHA Oregon community and are happy to schedule a complimentary consultation to discuss your specific situation and objectives. For more information on 1031 Exchanges, visit our website at www.re-transition.com and download our FREE Guide: Understanding 1031 Exchanges. Roger
Roger W. Bowlin, Founding Partner at Real Estate Transition Solutions, provides exit strategy analysis, execution, income and equity replacement options for investment property owners. If you have questions relating to your investment property ownership, please email him at: rwbowlin@re-transition.com or call (206) 686-2211. 1https://www.irs.gov/uac/soi-tax-stats-business-taxstatistics www.rhaoregon.org
MARK YOUR CALENDAR
LANDLORDING 101 August 3, 2019 from 9am-5pm (includes lunch) COST: $120 Member, $170 Non-member Register by close of business Monday July 29, 2019 to receive an early registration discount of $20
IMMEDIATE
RESPONSE Sean & Shelby Goforth 503-517-9027
junkawayhauling@gmail.com Your items picked up are recycled and/or donated Shelby Cell: 971.998.4654 Sean Cell: 971.808.6387 PORTLAND
VANCOUVER
AT: Celebrate Conference Center 15555 SW Bangy Rd., Lake Oswego, OR 97035 For more information visit: https://rhaoregon.org/event/landlording-101-4
Spend an entire day with Past President and Residential Property Manager Ron Garcia. Learn first hand from the pro how to successfully manage your rental property using RHA Oregon forms and best practices honed by years of experience. You will come away from Landlording 101 with a deeper understanding of Rental Housing and Fair Housing law, better management strategies plus a book of sample forms and notes. You will get answers to all your questions and learn things you didn’t know you needed to know that will help protect both you and your rentals.
www.rhaoregon.org
RENTAL ALLIANCE UPDATE JUNE 2019
7
RHA Oregon Annual Picnic
Bring an ageappropriate prize if you want to play Bingo!
at Oaks Park Picnic Area #1 Wednesday August 7
Thanks to our sponsors, members pay just $5 per person and children 12 and under eat for free! $12.50 Deluxe ride bracelets include roller skating! Schedule:
2:00 Registration Open 4:30 Vendor Fair 5:00 BBQ Dinner BINGO! To follow dinner
Pre-registration IS required! Sign up today at rhaoregon.org, by emailing info@rhaoregon.org, or by calling the office at 503-254-4723. Please note the number of adults, children 12 and under, and ride bracelets.