October 2021
A monthly newsletter published by the Rental Housing Alliance Oregon
rha est. 1927
www.rhaoregon.org
In this issue:
RHA Calendar of Events............................................page 2 Executive Directors Message.......................................page 3 Dear Maintenance Men.......page 4 Fall Maintenance Checklist..................................... page 5 Attention Members!!!! By-Law Changes.......................................page 6 Inheriting Real Estate - Two Scenearios..................................page 9 TVFR- Fire Lanes.......back cover
Spooky UncertaintySee page 2 for RHA’s classes
Rental Housing Alliance Events & Classes • • • • • •
Join us for RHA Oregon’s Membership Meeting
Where: via Zoom When: Wednesday October 20, 2021 at 6pm Price: FREE Panel Speakers: Charles Kovas w/ Charles Kovas Law, Phil Owen, and Doug Moe w/ 24/7 Properties Topic: Crazy But True Stories Share your Crazy But True Stories and get answers to difficult landlord questions from a panel of experts in the rental property industry.
DATE
EVENT
LOCATION
TIME
INFORMATION
10/13
Board Meeting
Zoom
4:00pm
10/21
Mentor Round Table
Zoom
6:00pm
11/10
Board Meeting
Zoom
3:00pm
11/20
Mentor Round Table
Zoom
11:00am
DATE
CLASSES
LOCATION
TIME
INSTRUCTORS
10/05
Improve Your Chances of Collecting Covid-Era Rent
Joim.me
7:00pm
Robert Collier with LandlordReference.com
10/05
Online Tenant Screening Class
WebEX
11:00am Ron Garcia Executive Director of RHA Oregon
10/07
Online Tenant Screening Class
WebEX
7:00pm
Marcia Gohman w/National Tenant Network
10/13
Improve Your Chances of Collecting Covid-Era Rent
Join.me
7:00pm
Robert Collier with LandlordReference.com
10/14
The Continuing Moratorium
Zoom
6:30pm
Charles Kovas w/Kovas Law Firm
10/21
Improve Your Chances of Collecting Covid-Era Rent
Join.me
7:00pm
Robert Collier with LandlordReference.com
10/21
Ending the Tenancy The Right Way: No Cause and For Cause What’s the Difference?
Zoom
11:30m
Dan Hayes with Real Property Management Solutions
10/26
The Continuing Moratorium
Zoom
6:30pm
Charles Kovas w/Kovas Law Firm
10/26
Online Tenant Screening Class
WebEX
7:00pm
Marcia Gohman w/National Tenant Network
10/28
Online Tenant Screening Class
WebEX
11:00am Marcia Gohman w/National Tenant Network
10/29
Improve Your Chances of Collecting Covid-Era Rent
Joim.me
7:00pm
Robert Collier with LandlordReference.com
11/02
Improve Your Chances of Collecting Covid-Era Rent
Joim.me
7:00pm
Robert Collier with LandlordReference.com
11/10
Improve Your Chances of Collecting Covid-Era Rent
Join.me
7:00pm
Robert Collier with LandlordReference.com
11/11
Pet Policy and ESA’s: How to Be Successful In Today’s World
Zoom
6:30pm
Dan Hayes with Real Property Management Solutions
11/18
Improve Your Chances of Collecting Covid-Era Rent
Joim.me
7:00pm
Robert Collier with LandlordReference.com
11/18
Investment Property Analysis Workshop: How To Determine If Your Rental Property Is Still a Good Investment
Zoom
11:30am
Dee Reddy with Garcia Group
11/23
Notices of Termination – Selling Tenant Occupied Properties
Zoom
6:30pm
Charles Kovas with Charles Kovas Law
All educational classes/seminars are open to members in good standing and the general public. A member in good standing may register and pay for an invited guest at the member rate for the educational class. General public must pay at the time of registration and at the non-member rate. To qualify for the early bird registration rate you must have your registration into the RHA office no later than 4:59pm on the listed early registration date in the advertising for the event. Deadline for refund/credit or cancellation of registration is up until 48 hours prior to the date and time of the class/seminar, up until 48 hours prior you will be refunded 100% of the cost to attend. If a registered guest/member does not cancel and/or does not show to the scheduled class/seminar then the registered guest/member will be required to pay the full amount of the class/seminar. All registrations are non-transferable. Currently all classes are in Zoom meeting format. RHA Oregon is not responsible for attendee’s inability to log into Zoom meeting. The Zoom invite will go out as an email to all those registered. Make sure the following email addresses are added to your email contact list to make sure you receive the email invite into your inbox; info@rhaoregon.org, cari@ rhaoregon.org, memberservicesasst@rhaoregon.org, and specialprojects@rhaoregon.org. Please check your spam folder email settings to make sure you receive the email invite. RHA is not responsible for lost or spammed emails.
For additional class/event information visit: https://rhaoregon.org/education 2
RENTAL ALLIANCE UPDATE October 2021
www.rhaoregon.org
From the desk of the Executive Director Ron Garcia, RHA Oregon Executive Director
The late breaking news in Oregon’s rental housing industry seems to be the same news we’ve been hearing all year. There is over $200,000,000 in aid the State of Oregon has received from the federal to be paid to landlords for all the past due rent from their tenants as a result of the eviction moratorium that was enacted in March 2020, due to the Covid 19 pandemic. Haven’t we already heard this? So, what’s new? The answer is that the agencies in charge of paying the funds keep talking about the great efforts being made to get the money out the door. They are now sharing that over 70% of the funds have been “committed”. But the reality is that as of this writing in early October, less than 25% of the money has actually been paid to waiting property owners. We learned that September 30th was a deadline for the states to be accountable to the US Treasury, who required that 65% of the funds needed to be used up, or else the state would be required to return the balance of unused funds back to the federal government. This explains the creative semantics that are being offered to appease landlords who are waiting for their checks. The funds have been “committed”. Yet we get calls daily from owners whose tenants have applied for rental assistance and who are now being told to check the status of the applications. When they do, they learn that it is “pending initial review”, “in final review”, or “submitted”. This is frustrating to say the least and many owners are beginning to holler “show me the money!” When SB 278 was passed, it promised to calm the nerves of landlords who wanted to evict tenants for non-payment by offering a 60-day reimbursement if the tenants applied for aide. What seems to be transpiring now is that this “safe harbor” has been translated by many as a ‘safe incentive’ for tenants to NOT pay rent. The result is creating an even larger backlog of debt that they hope the government will cure with the pot of money that is still sitting there untapped. So instead of getting closer to the finish line of this soggy mud-race, we seem to be just getting muddier and weaker the longer we keep dragging this marathon out. Our advice to most rental property owners thus far has been to “hang in there a bit longer – relief is on the way”. Indeed, it has been emphasized by the state that this assistance was created to keep tenants housed. Therefore, evicting a tenant that owes back money is a bad risk for landlords, because they will essentially be giving up their claim for the very state reimbursement that has been promised to them. Recent news is now breaking that some legislators want to extend the safe harbor bill even longer (essentially making a fourth extension of the eviction moratorium a possibility). The Rental Housing Alliance Oregon is on record to say that this is unacceptable. Landlords have been asked (required) to fund the government’s housing policy of deferring rent for tenants based solely on their own declaration of hardship. The government’s policies are only making it worse. If the state wants to fund tenant housing payments, they need to find the money in the budget to pay the housing providers. Private Citizens should no longer be required to be “deputized by force” to pay the bills for unfulfilled promises made by the state. Of course, the reply is apt to be that there is no money in the state budget to pay hundreds of millions of dollars of residential rent. After all, housing is still a private industry, not a government agency, right? If that is true, then allow the market to make its corrections. We urge our legislative representatives to act responsibly and end these no-win policies that hurt the very people they are saying they help.
www.rhaoregon.org
RENTAL ALLIANCE UPDATE October 2021
3
Dear Maintenance Men by Jerry L’Ecuyer & Frank Alvarez
Dear Maintenance Men: I understand why it is bad to put banana peels, celery and potato skins down the garbage disposal as they are fibrous or prone to compression. However, why are coffee grounds also bad put down the disposal unit? The grains are small enough to pass right through. Michael Dear Michael: We find most people put too much in the disposal and don’t use enough water. What happens with the coffee grounds, especially with back-to-back drains, is that the coffee grounds tend to pile up in the pipe as it goes through the wall. Over time it will pack the pipe completely. The garbage disposal does not have trouble with the grounds themselves, it is what happens after they leave the disposer. Again, if the coffee grounds are fed slowly into the disposal with plenty of water running, the grounds will disperse and not compact in the drain line. However, it is best not to dump them in the sink in the first place. Dear Maintenance Men: I have a rental complex that is rented with all utilities paid. What is the best and most economical way to save on the utility costs. Marvin Dear Marvin: Blown in attic insulation is the best bang for the buck when it comes to cutting down on heating and cooling. It is very quick and easy and economical. Blown in insulation is easy enough for a DIY, yet cheap enough to have a professional do the work. We also recommend replacing all of the incandescent light bulbs with LED light bulbs. This is as easy as unscrewing one energy hog bulb and replacing it with another ultra-efficient bulb. The LED bulbs offer far more light at a fraction of the cost. If you replace both the exterior house lights and the interior lights, you should see a substantial reduction in your utility bill. LED bulbs and light fixtures have a very long service life and will save money in the long run. You may want to check with your city or utility supplier; they often have low cost energy saving programs, or rebates. Dear Maintenance Men: I am planning to install a new sprinkler system in the lawn area of my apartment building. How do I estimate the
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RENTAL ALLIANCE UPDATE October 2021
number of heads and how far apart do they need to be? John Dear John: First, get an accurate measurement of the area you want to install the sprinkler system. Transfer the measurements to graph paper. Decide on a scale such as one square of the graph paper equals one foot or maybe if you have a large area, one square equals five or ten feet. Draw the dimensions of the area you are planning to irrigate. Next decide what type of sprinkler head you will be using such as impact sprinkler (Rainbird type), brass heads or pop up, or rotary heads. The manufacturer will list the water spray radius. If you want the diameter the head will cover, multiply by two. But, knowing the radius should be enough for this purpose. The spray coverage should overlap each head between 80 and 100 percent. What this means is; if the sprinkler head has a spray radius of 10 feet. Each sprinkler head should be spaced 10 feet apart. That is called head to head spacing. If you deviate greater than 80 percent, you may get dry spots at the times you need the water the most; such as during summer heat and windy conditions. Stated another way, sprinkler “A” should wet sprinkler “B” and so on. On the graph paper grid the circles should intersect and touch each sprinkler head. Don’t forget the more sprinkler heads you have the more you will need to pay attention to both gallons per minute (GPM) and water pressure supplying your sprinkler system. The sprinkler manufacture should have a chart showing how many sprinkler heads can be controlled by one valve depending the GPM at a certain water pressure. Recommended reading: http://www.irrigationtutorials.com 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 contractor and the Operations Director and coowner of Buffalo Maintenance, Inc. He has been involved with apartment maintenance & construction for over 30 years. Frankie is President of the Apartment Association of Orange County and a lecturer, educational instructor and Chair of the Education Committee of the AAOC. He is also 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 a Director Emeritus 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 professional since 1988.
www.rhaoregon.org
BOARD OF DIRECTORS NOMINATIONS October 20, 2021 VOTING November 17, 2021
Fall Maintenance Checklist
Officers December 15, 2021
In fall, prepare your rental property and yard for cooler temperatures, falling leaves and more hours spent indoors.
OFFICERS
Outdoor Tasks:
INSTALLATION of Directors &
Melinda McClelland-President Jerad Goughnour-President Elect John Sage-Vice President
Clean gutters and downspouts. Have a fireplace professional clean & inspect the fireplace, roof and chimney for cracks or damage.
Lynne Whitney-Secretary
Close or install covers on foundation vents.
Elaine Elsea-Treasurer
Rake leaves and shred to use as mulch or dispose of them based on local guidelines.
NOMINATION FOR DIRECTORS Two Year Term
Tamara Collins
Close or install storm windows. Remove hoses from spigots. Install spigot covers.
Charles Kovas
Prune trees and shrubs.
Diana Lindemann
Have heat pump professionally inspected and serviced.
Rod Akroush
Indoor Tasks:
Sebastian Sanchez Phil Owen
Test all smoke and carbon monoxide detectors.
Mark Passannante-Executive Member at
Check windows and doors for weather-tightness and install weather stripping where it’s needed.
Large
DIRECTORS CONTINUING TO SERVE One Year Term Remaining Jim Herman Katie O’Neal Doug Moe Jake Ramirez Violet Anderson
www.rhaoregon.org
Have furnace professionally inspected and serviced. Maintain clean drains by adding one-half-cup baking soda followed by one-half-cup white vinegar. After 10 minutes, flush with boiling water. If needed, set traps for rodents and/or insects. Use a professional service if necessary. Katie O’Neal is a Licensed Property Manager, Continuing Education Provider, Chair of the Education Committee for the RHA Oregon, and General Manager of the Portland Oregon branch of Acorn Property Management, LLC. She can be reached with questions or comments at 971-3526760 or Katie@AcornPM.net. RENTAL ALLIANCE UPDATE October 2021
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ATTENTION MEMBERS!!! The following are changes to the RHA Oregon By-Laws;
of units managed that constitute their Designation Members.
ARTICLE III – QUALIFICATIONS FOR MEMBERSHIP, FEES, DUES AND PRIVILEGES
(CURRENT BY LAW) ACTIVE-AFFILIATE Membership shall include those individuals, firms or organizations, which both own or operate rentals and provide goods or services to owners or operators. This class of membership shall enjoy all the benefits of Active Membership and all the benefits of Affiliate Membership. Dues shall be charged according to current schedules for both memberships, not to exceed the maximum for either Active or Affiliate dues.
Section 1. (2022 CHANGES)CLASSES: There shall be four total classifications of membership in the association; three shall be regular members and one shall be a limited member. Regular members are called: Active Membership, Vendor Membership, and Professional Membership. Limited members are called Designation Membership. (CURRENT BY LAW)CLASSES: There shall be three classifications of membership in the association. Active Membership (Regular), Affiliate Membership, and ActiveAffiliate (Dual) Membership. Section 2. (2022 CHANGES)ACTIVE Membership shall include owners/operators of any residential property which is rented or leased (aka landlords or residential housing providers). (CURRENT BY LAW) ACTIVE Membership shall include owners and/or operators of any residential property, which is rented or leased. Section 3. (2022 CHANGES)VENDOR Membership shall include any person, firm (except property management), or organization, which provides goods or services that would be of benefit to the owners or operators of rental housing. Vendor Members shall be provided opportunities to make their goods and services known to Regular and Professional Members. (CURRENT BY LAW) AFFLIATE Membership shall include any person, firm (except property management), or organization, which provides goods or services that would be of benefit to the owners or operators of rental housing. Affiliate members shall be provided opportunities to make their goods and service known to Active members Section 4. (2022 CHANGES)PROFESSIONAL MEMBERSHIP Shall include those individuals, firms or organizations that provide fee-based management services to owners or operators of rental housing (aka property managers and property management companies). This class of membership shall enjoy all the benefits of Active Membership and Vendor Membership, along with those benefits of Designation Membership. Dues shall be charged according to current schedules for Regular Membership not to exceed the maximum annual amount based on the number 6
RENTAL ALLIANCE UPDATE October 2021
Section 5. (2022 CHANGES)DESIGNATION membership Shall Include clients of Professional Members (property managers) who have limited access to association benefits, including: legislative advocacy, designated classes, legal updates, and events (provided they are registered in advance by their designated Professional Member). Sections 5, 6 and 7 to be changed to 6, 7 and 8 respectively. (All references in the By-Laws to Active- Affiliate and or Affiliate classifications to be updated to Vendor or Professional Member as appropriate). Section 8. (2022 CHANGES)PRIVILEGES: Members of all classes shall be entitled to receive all benefits as presented in the current association Value Proposition established at the time of member’s application. The Board of Directors shall approve separate privileges of membership or changes to the Value Proposition for each of the four classes no later than September 30 each year to be effective on January 1 of the following calendar year. Nothing contained in these by-laws will prevent more than one individual of a single paid membership from participating in the corresponding activities attached to that specific membership. (CURRENT BY LAW) PRIVILEGES: Members of all classes shall be entitled to receive all bulletins and association publications, the right to purchase and use forms sold by the association, to attend all regular and special meetings of the association, and to receive membership cards attesting to affiliation with the association without additional cost. The Board of Directors shall approve separate privileges of membership for each of the four classes no later than September 30 each year to be effective on January 1 of the following calendar year. Nothing contained in these by-laws will prevent more than one individual of a single paid membership from participating in the activities of the association
(continued on page 7)
www.rhaoregon.org
RHA Oregon By-Law Changes CONTINUED FROM PAGE 6
ARTICLE IV – VOTING RIGHTS, ELIGIBILTY Section 1. Only Regular, Vendor or Professional Members shall be equally eligible to hold elective office and the President and President-Elect shall be from the Active or Professional membership classification, and except that the majority of members of the Board of Directors shall be Active or Professional members. Section 2. All members from the four classes of membership shall be equally eligible to vote. Each paid membership shall be eligible to cast one vote at general membership meetings and if so elected, at Board of Director meetings. ARTICLE V – OFFICERS AND BOARD OF DIRECTORS Section 1. OFFICERS: The officers of this association shall be President, President-Elect, Vice President, Treasurer, Secretary, and Immediate Past President. Officers, except for the Immediate Past President, shall be elected at the general meeting of members in November and shall serve for a period of two years beginning on the first day of January following the election.
call during the calendar year and shall convene as needed to nominate a replacement if a vacancy occurs among any of the officers or other members of the Board of Directors. ARTICLE X – AMENDMENTS (2022 CHANGES)These By-Laws may be altered or repealed by other By-Laws adopted by a majority vote of the Board of Directors and then approved at a general membership meeting. A copy of the proposed changes shall be posted on the RHA Oregon website and sent via mail or email to the general membership no less than once a month for two consecutive months prior to a general membership vote. (CURRENT BY LAW) These By-Laws may be altered or repealed or other By-Laws adopted by a majority vote of the Board of Directors and then approved at a general membership meeting. A copy of proposed changes shall be published in the OAA/RHAGP trade journal two months before the general membership votes. Revision date will change to January 1, 2022
THE VALUE OF MEMBERSHIP
Section 12. There shall be at least 15 and not more than 20 members of the Board of Directors which shall include all of the elected officers, the Immediate Past President, and at least one Vendor Member and no more than six Vendor members. ARTICLE VI – COMMITTEES Section 7. The MEMBERSHIP COMMITTEE shall be responsible for attracting new members and retaining existing members. It shall have a Vendor subcommittee whose responsibilities are directed toward gaining Vendor members. It shall have a Welcoming subcommittee whose responsibilities are directed toward assisting new members in getting acquainted with association activities and welcoming all members at the door at general membership meetings. ARTICLE VII – ELECTION OF OFFICERS AND DIRECTORS Section 1. The NOMINATING COMMITTEE shall consist of a Past President who shall chair the committee and who shall select two Active Members from the current Board of Directors and two other Active or Vendor members. The Nominating Committee shall remain on www.rhaoregon.org
•
Legislative Representation
•
General Membership Dinner Meetings
•
Mentor Program- FREE Mentor Roundtable
•
2000+ Members
•
Educational Classes
•
Substantial discounts on Rental Forms, Education & Tenant Screenings
•
Membership starting at $99
•
Fully staffed office open Monday-Friday 9am-5pm
Since 1927, the Rental Housing Alliance Oregon has set the standard for community participation by landlords providing affordable and fair housing.
Visit www.rhaoregon.org or call 503/254-4723 for details!
RENTAL ALLIANCE UPDATE October 2021
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RENTAL ALLIANCE UPDATE October 2021
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Inheriting Real Estate-Two Scenarios by Cliff Hockley President of Bluestone and Hockley Real Estate Services Executive Director, SVN | Bluestone and Hockley
Untrained and Confused Jaime was 35 years old when she received a text from her mother that she was needed at home in Florida. Her grandmother had passed away and had appointed Jaime the executor of her estate. After getting off the phone and arranging for her flight to Florida, Jaime wondered what an executor was and why she had been chosen. She quickly Googled to get the definition for the word executor. Jamie learned that she was supposed to be responsible for submitting all the documentation to the court and deal with operations and liquidation of the estate in addition to preparing the taxes for her Grandmother’s estate. Her flight was a red-eye from Portland, OR to Fort Lauderdale, and then she had to rent a car to drive to Boca Raton. The sun was just coming up as she picked up the rental. She reached Boca Raton in record time and got to her mom’s house just in time for breakfast. “Hi Mom, I’m here. What do I need to do?” Her mom said let’s figure this out after breakfast and you have a chance to shower. We need to see the attorney and see if there is a will or trust and how grandmother was going to allocate her funds. But first I need to tell you a story. Your grandmother Elsa was married three times. Each time she remarried she managed to save a little bit of money and she started buying industrial properties. Most of these properties had multiple tenants in them. Think of them as apartments in industrial buildings. Elsa had five of these when she died, all of them in Florida. Her property manager, George Masterson of Masterson Commercial Property Management, has been taking care of these assets for her. “She didn’t want to tell you about these investments because she wanted you to keep your feet on the ground and have you grow up into a thoughtful young lady, which is clear that you have. You have your own small business; you understand the value of money. Your job is to figure out what to do with all the properties and how to manage the tax implications that will result from this estate. We estimate her estate to be worth $15 million.” Jamie about fell out of her chair. Her grandmother had lived in a small single-level house of about 1400 square feet in Boca Raton and drove a VW Bug but had never seemed to be wealthy or well-to-do. This was a huge shock. After www.rhaoregon.org
her shower Jamie and her mother called Vanessa Smith, the estate attorney, to make an appointment and figure out what to do with this large estate. They assumed there were going to be taxes, and they needed to find money to pay the Federal Tax bill. Fortunately, Florida doesn’t have any estate taxes, but the federal government did have death taxes that currently start at estate values over $11,700,000. Find states that have estate taxes: click here: https:// taxfoundation.org/state-estate-tax-state-inheritancetax-2020/. Jaime had not worked with Attorneys, CPA’s or Property Managers. The learning curve was significant, and then her brother Charlie filed a claim that he should have been the executor and should have control of all the assets. That did not go very far, because the trust was very clear regarding Jaime and how the estate was going to be allocated. Charlie was pushed out. He was an opportunist after all and never once visited his grandmother because she was “too poor” and not worth his time. Jaime had visited with her often and called her every weekend. Her grandmother trusted her. The primary reason Elsa had chosen Jamie and not her daughter is because she lived to 98 years old and her daughter at 70 might not have been able to navigate the estate. But Jamie struggled. She had no financial training, did not understand basic proforma analysis, commercial leasing, building maintenance, or taxes. She had no idea whether to renew leases, pay for tenant and/or building improvements. Budgets were foreign to her and this was a lot to take in and take care of her own business as well. She ultimately decided to close her business and move to Boca to be with her mother and the properties so she could understand better and spend full time on these investments. It was good that George Masterson was a good teacher and very patient. After 12 months she started seeing daylight. Most importantly she had a chance to look at all of the properties and meet most of the tenants and could make thoughtful decisions, but it was an uphill climb. It would have been helpful if Grandmother Elsa had taken the time to train her before she was not available to coach Jamie. Though she did leave behind a letter for Jaime that outlined the past history and a potential future vision for the portfolio. She also detailed how she made some of her decisions, and thankfully all her properties were paid off. Her friend Anil had an easier time.
(continued on page 10)
RENTAL ALLIANCE UPDATE October 2021
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Two Scenerios CONTINUED FROM PAGE 9
Training Pays Off Anil grew up in Oregon and his parents were physicians. They owned 300 apartment units at 6 locations that they purchased early in their medical careers. They also owned five medical buildings (two surgery-centers and three office buildings), that were designed as medical office plazas. Anil was not a physician, but he had an instinct for real estate and interned for two commercial management companies in his twenties. Anil, his brother, and sister each had a role in the family real estate investments. He was the general manager and made all of the major policy and leasing decisions. His sister Krishna took care of the accounting and his brother Bashir was responsible for building maintenance. They all took the same real estate classes, finance, accounting, maintenance, and all worked for two outside companies to get a handle on the state of the art. They made all decisions as a group, and once the youngest was 30 years old, the parents delegated all of the operating decisions for the real estate investments to the children because they were very wrapped up in their medical practices. This estate was valued at about $60 million dollars and had about $30 million of loans that needed to be serviced from the revenue generated by the tenants. The parents established a long-term trust so that this investment portfolio could last at least two generations. The parents met with the children three times a year to review the direction of the investments. The cash flow that was generated by the investments was used to pay the children’s salaries and create additional value for the parents so that when they decided to retire they would have a very comfortable retirement. All major decisions were decided at these three meetings, especially ones having to do with spending significant money, refinancing properties, or purchasing additional properties to build the corpus. The family drafted a nonbinding statement of the key ideas and aspirations that they used to build their estate so that the kids knew what the parents had in mind in the long run. You could say that they were going to end up operating their estate from the grave but that’s not really true, they just wanted to help the kids focus on the future. Anil obtained a Certified Property Managers certificate (CPM), as well as a Certified Commercial Investment Member (CCIM) designation to maximize his educational 10
RENTAL ALLIANCE UPDATE October 2021
background. His sister obtained an accounting degree, and his brother became a contractor. They had big dreams because they all wanted to have children and wanted to be able to pass down this trust to their next generation as well. Fortunately, they were all focused on achieving the same goals. That is not to say that they didn’t have disagreements or maybe conflicts of vision. But they understood that standing together they would be able to make a lot more money and invest more wisely with less risk than if they split the assets apart. It wasn’t easy to work together. One thing they did do is create a mechanism to deal with an impasse and decision-making conflicts. They found a way to break a tie vote. They also agreed that if they did not have a consensus on a direction they could table the decision for a few years and see if it made sense in the future. Another thing that became very relevant after ten years was that the first properties their parents had purchased were aging out and needed to be renovated or replaced. Finding the correct kind of financing was difficult given that they were just part of the trust and the parents had all the net worth. It took some very creative work with banks and lending institutions to achieve some of the repositioning that was necessary to grow and readjust the portfolio. Their parents weren’t young, but they lived another 20 years which gave the siblings time to mature, test out their theories and build the size of the trust by buying more real estate. Because they had so much trust in each other, they were able to develop and redevelop some properties, and learn what worked and what did not. After the parents passed away because all the assets were in Oregon, not only were there state death taxes but there were also federal taxes given the size of the portfolio. This slowed down some of the growth because they needed to set some significant cash aside for future tax planning. They did not want to sell any of the assets if they did not have to pay the taxes. Anil knew they were lucky because everybody was generally on the same page. Anil had friends whose siblings wanted to split all the assets immediately upon the death of the last parent. He had a friend whose family owned an apartment complex in an excellent location. When the father died the five siblings could not wait to liquidate the asset because they needed (continued on page 11)
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Two Scenerios CONTINUED FROM PAGE 10
to pay for college for their children or they want to buy a new house or the motorhome they had was not new enough.
long way as you build the next generation’s assets and follow the footsteps of the parents and family members and allow the assets to make money for you.
Only one of the siblings saw the long-range vision and wanted to keep the property, but he was unable to convince the others. Life is hard even if you are working with real estate assets that your parents have assembled. When Anil started actively managing these properties, they realized that they needed some consulting help, and they hired a property manager to lay the groundwork for them and create the business infrastructure. They decided to keep the property management function in place over the long run because it gave all three of them a neutral third party whose information they could trust as they move forward as coinvestors in their parent’s trust. It seems this story has a very happy ending.
Not everybody will like real estate. Many of the decisions are extremely difficult and sometimes we make the wrong decisions because we don’t know any better. Or sometimes we make the wrong decisions because our experience tells us to do it one way when in fact our experience was good five years ago, but things have changed like technology has advanced. A good example is touchless showings for residential properties which nobody would have implemented before the covid pandemic but now has become extraordinarily popular and has reduced property management overhead because you can have fewer leasing agents.
Conclusion It is unusual for a third generation to inherit a business, but it is not usual for a second generation to take over assets that have been developed by the first generation. (https://www.cnbc.com/2019/09/26/majority-of-theworlds-richest-people-are-self-made-says-new-report. html) The concepts of staying humble and thoughtful and caring not only for the assets but also for the tenants can go a
Anil was lucky that he and his siblings had a lot of training and it was a very, very smooth handoff from his parents’ generation to his. Jamie on the other hand really struggled for some time before she was able to get her arms around the investments and just understand the issues that need to be dealt with, but she was fortunate that she had a strong property manager to lean on. Looking back had Jamie known that she was going to be the executor and the manager of the family portfolio she probably would have taken the time to take some business and real estate classes in college and maybe been more involved with her grandmother’s investments.
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RENTAL ALLIANCE UPDATE October 2021
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