Arizona RHJ March 2018 by Professional Publishing, Inc

Rental Housing Journal Arizon

March 2018 - Vol. 10 Issue 3

2. 6 Types of Fencing for Your Rental Property 3. How to Build Wealth Through Apartment Investing 4. Multifamily Managers and Marijuana: Caught in a Pot Crossfire 5. Millennials' Expectations Driving Maintenance Changes

7. Job Gains Foster Heightened Economic Growth; Increased Completions Ease Rent Gains 8. Dear Maintenance Men 9. Chaise Lounges and Heaters are Leading the Way

www.rentalhousingjournal.com • Professional Publishing, Inc Monthly Circulation To More Than 7,000 Apartment Owners, Property Managers, On-Site & Maintenance Personnel

Spring Rental Property Maintenance Outside To-Do’s

s weather gets milder, it becomes easier to begin projects that would have been difficult or even impossible to complete during the wet and cold of winter plus summer heat is right around the corner. 7 Spring Rental Property Maintenance Outside To-Do’s 1. Water Drainage – Those April showers might come in handy after all. They are the best way to test out the efficiency of a property’s drainage system. After rainfall, it is necessary to check whether any water remains undrained around the property. Noticing whether puddles fail to disappear after 24 hours is one way of gauging this. If water fails to properly drain, moisture can easily increase around the property’s foundations and walls, often causing heightened moisture levels within the property and water damage to walls and floors, which all facilitate mold growth. Our experts encourage turning to a professional who can evaluate the efficiency of a property’s drainage system and suggest any maintenance work to ensure that water is directed away from the property. 2. Roof – While it’s best to hire a professional to climb on the roof and check for cracks that might cause interior leaks, the Do-It-Yourself and Climbing-Free option entails spraying water with a garden hose (if possible) onto the roof and ...continued on page 3

Phoenix’s Strong Tailwind for Multifamily Growth

ultifamily growth is strong as Phoenix is reinventing itself as a tech hub driven by a diverse economy, welcoming young professionals and investors looking for higher yields in secondary markets, according to a new report from Yardi Matrix. Phoenix rents rose 3.2 percent in 2017, outpacing the 2.5 percent national growth rate. The average rate across the

metro reached $1,020, below the $1,359 national average. These and other highlights are summarized in Yardi Matrix’s new report, “Phoenix’s Strong Tailwind,” a microeconomic analysis of the city’s multifamily market. The total transaction volume in 2017 was nearly $4.5 billion, almost on par with the 2016 cycle peak. Education and health services led

employment gains with 10,100 jobs added in the 12 months ending in October 2017. The technology sector is quickly catching up. Statistics from the Arizona Office of Economic Opportunity Employment show that the professional/scientific/ technical services subcategory jumped 4.8 percent for the same period. Phoenix ranked third among the ...continued on page 2

New Tax Law Holds Favorable Prospects for Commercial Real Estate Potential to Boost Space Demand and Capital Flows by Marcus & Millichap

ew tax law retains key pro-

visions for real estate investors. The highly anticipated tax reform recently signed into law by President Trump retained numerous key commercial real estate provisions. The1031 tax-deferred exchange, the mortgage interest deduction for investment real estate and asset depreciation had few material changes. This consistency in tax law will enable investors to move forward with most of their existing investment strategies. That said, there are many provisions in the new tax law that will have a more nuanced effect on the sector, and these more subtle adjustments could create significant new opportunities for real estate investors. Finalization of tax rules to reduce uncertainty. Over the last

year, elevated uncertainty generated by the range of potential government policy changes, including tax laws, caused many investors to move to the sidelines. A more cautious outlook pervaded the industry as investors awaited clarity

on taxes, fiscal policy and a change in Federal Reserve leadership. This perspective could begin to ease as the implications of the new tax law firm up and investors better understand how the new rules will affect their investments. The new tax plan offers generous tax cuts to corporations and pass-through entities such as Limited Liability Companies(LLCs), and investors may see the new tax rules as an opportunity

Text REALESTATE-ROI to 44222 to receive a digital copy of this year's Real Estate Opportunities in Investing (ROI) Finding Investing Success in Today's Housing Market

to reconfigure their portfolios. The new tax structure will apply to 2018 income for tax filings in 2019.

Reduced taxes on pass-through entities may boost capital flows.

Perhaps more important than the modest changes to the core commercial real estate tax rules that investors have been most focused on is the reduction ...continued on page 10

Text 51WAYS to 44222

to receive the FREE e-book 51 Ways to Increase Your Rental Property Cash Flow (And 10 Ways to Ruin It)

Rental Housing Journal Arizona

6 Types of Fencing for Your Rental Property

Wood fence a traditional favorite requiring maintenance

Vinyl easy to install but can be damaged

Wrought iron strong and saves on maintenance

encing for your rental property is the maintenance checkup this week, provided by Keepe, who reports getting a record number of repair requests from property managers and tenants about weather-damaged and broken fences this winter. When it comes to installing a fence on your rental property the kind of fencing you choose can make a serious difference on your finances, maintenance and most of all, the safety of your tenants and your property. Broken fencing can be an inconvenient and time-consuming expense. Being prepared against costly last-minute repairs is possible, and it begins with knowing how to best protect your investment.

Different kinds of fencing materials have different maintenance needs, which are fundamental to explore for the purpose of selecting which fencing option really is best for both your needs and expectations. Wooden fences are a traditional favorite and have historically been an iconic component of American homes everywhere. This is likely due to the fact that wood is a widely available material, and a great number of varieties especially pine and cedar, two of the most commonly used for fencing - are rather inexpensive. Different cuts, grains, colorations, staining treatments and painting styles make wooden fences very versatile as they are easy to

customize to match homes and gardens as desired. The main downside with wooden fencing is the fact that it requires regular maintenance work to both last and look appealing: it can be severely damaged by weather, vegetation and parasites. The best available way of protecting wooden fencing is ensuring that the wood is regularly treated by a professional, who can apply sealants, stains and preservative coatings. A pricier option, “Pressure Treated” (PT) fences, are made with wood that has been thoroughly treated with preservative chemicals when manufactured, and generally come with special warranties. Overall, our experts suggest to avoid letting vegetation to

grow on the wood to protect it from excessive moisture, and to have it regularly treated to protect it against parasites, like termites. It’s important to keep in mind that very wet and very hot and dry climates can cause the wood to damage rapidly and crack, warp and splinter. A man-made material, vinyl (also called PVC) does not rot, splinter, crack or warp. The synthetic plastics utilized to craft this kind of fencing are inexpensive, and unlike wood, Vinyl can be manufactured, thus making it so that its standard market price is controlled and not likely to suddenly become more expensive. Another benefit to vinyl is that it is often made to be extremely easy to install, consisting of lightweight pieces that can be simply snapped together. Vinyl does cost slightly more than wood, but in contrast, it is not so easily damageable and it is not demanding when it comes to maintenance. Manufacturers claim that the only maintenance issue that is likely to affect Vinyl over time is discoloration, but this can be easily resolved by simply repainting the fence. While those characteristics are certainly appealing, our experts point ...continued on page 7

Phoenix’s Strong Tailwind ...continued from 1 country’s hottest cities for tech jobs in 2017, according to Money magazine, with several companies relocating or expanding in the metro. Intel announced a $7 billion expansion (originally announced in 2011 then delayed) slated to bring 3,000 new jobs to Phoenix. The metro’s industrial market is also performing well: Last year, Phoenix achieved its largest-ever annual net absorption gain, reaching 9.8 million square feet. 1. Access - Rentegration.com a web Multifamily growth forecastis at 5 based, multi-user percent rent growthsoftware in 2018 offering customers 24/7 access to forms generation, Development is- not slowing down, 1. Access Rentegration.com is a archives, property management dataas population growth and a thriving web based, multi-user software offerbase, basic accounting, vendor ordering ing cus- are tomers 24/7 access to forms job and market other services.fueling demand. generation, archives, property manRoughly 7,500 units are expected to agement database, basic -accounting, 2. Rental and Lease Forms Unlimited come online in 2018, a projected 15 other services. use vendor of a fullordering line of and state specific rental percent increase overAll2017, when new and 2.lease forms. Rentegration.com Rental and Lease Forms - Unlimitunits were quickly forms are createdabsorbed. by attorneys and/or

5 REASONS TOTOUSE RENTEGRATION REASONS

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ed use of a full line of state specific rental localand rental associations. leasehousing forms. All Rentegration.com forms are created by attorneys and/or 3. Simplified Accounting - Owners local rental housing associations. and managers can track income and ex3. for Simplified - Owners pense each unit,Accounting property and compaand managers can small tracksize income and ny. Perfect for mid and property expense each unit, property and managers andfor independent rental owncompany. Perfect forneed mid or and small ers, who neither have the budget size property managers and indepenfor larger, more expensive software. dent rental owners, who neither have the need or budget for larger, more expensive software.

tion.com is an easy to use, database driven software. Most form fields are auto 4. Management Database - Rentepopulated from the database. The modgration.com is an easy to use, database ules are all integrated and work together. driven software. Most form arerentFor example, a customer can fields use the auto populated from the database. The roll function to identify all delinquencies, mod- fees, ules are integrated andforms workwith apply andall create eviction together. For example, a customer a few simple clicks of the mouse. can use the rent- roll function to identify allValue delinquencies, apply fees,management and cre5. - Large property Rent growth remains above the ate eviction forms with a few simple companies that use Rentegration.com Color Standards for National Tenant Network national average,Logo despite deceleration clicks of the mouse. for only forms generation will save time in the last few months of 2017. Yardi • Logos are provided on the CD in all three forms: and money over property other methods. 5. Value - Large manage- Mid all black, reversed to white, or in PMS 280 Blue/PMS 7543 Gray spot or 4/color applications. Matrix forecasts a 5 percent rent and small size property managers and Please see belowthat for specific examples. ment companies useuseRentegraindependent rental owners can manage growth for 2 tion.com onlyareforms • No for other colors acceptablegeneration for use for the logo. their entire business at a fraction of the will save over other • Notime alteringand of the money logo is allowed. If you have a special circumstanceA thatstudy requires something by thenotNational Multifamily cost of other and provided onand the CD, please callforms. NTN NATIONAL HEADQUARTERS 1.800.228.0989 for assistance. methods. Midsoftware small size properHousing Council and National • Logos should be put over a busy background. ty managers andnotindependent rental Apartment Association found that the owners can manage their entire busiarea will need more than 150,000 new ness at a fraction ofBLACK the cost of other WHITE (with 40% gray circle) apartments by 2030. software and forms.

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Yardi Matrix writes that, “Phoenix is an attractive market for investors due to above-trend rent growth and demand fueled by prolonged demographic expansion and tech job gains. In 2017, investors mostly focused on assets located outside the PMS 280/PMS 7543 over color metro’s core, mainly in southeastern submarkets. Tempe, Mesa, Deer Valley, Gilbert and Chandler accounted for roughly half of the metro’s total transactions volume.”

tion.com is anWASHINGTON easy to use, database drivbased, multi-user software offering cus- TEXAS, UTAH, & MORE. tomers 24/7 access to forms generation, en software. Most form fields are auto 4. Management Database - Rente1. Access - Rentegration.com is a populated from the database. The archives, property management dataBlue PMS 280/Gray PMS 7543 Exclusive Industry Partner of: modState specific rental and lease gration.com is an easy to use, database web based, multi-user software offerintegrated and base, basic accounting, vendor ordering ules are all forms available in:work together. ing customers 24/7 access to forms For driven software. Most fields arerenta customer canGA, useIL, the AK,example, AZ, CA, CO, DC, DE,form FL, and other services. generation, archives, property man- roll auto populated from the database. The IN,function KS, KY, MA, NC, NJ, NV, NY, OH, to identify all delinquencies, agement database, basic -accounting, modules integrated workwith 2. Rental and Lease Forms Unlimited apply OR,fees, PA,are TX,all UT, VA, eviction WA & and WV. and create forms other services. For example, a customer use vendor of a fullordering line of and state specific rental atogether. few simple clicks of the mouse. can use the rent- roll function to identify and 2.lease forms. All Rentegration.com Rental and Lease Forms - Unlimitrentegration.com 503.933.6437 sales@rentegration.com all delinquencies, apply fees,management and cre5. Value - Large property forms are ofcreated attorneys ed use a full lineby of state specificand/or rental www.Rentegration.com 503-933-6437 sales@rentegration.com ate eviction forms with a few simple companies that use Rentegration.com Color Standards for National Tenant Network Logo localand rental associations. leasehousing forms. All Rentegration.com clicks of the mouse. for only forms generation will save time forms are created by attorneys and/or 2 3. Simplified Accounting - Owners and money • Logos areover providedother on the CDmethods. in all three forms: Mid local rental housing associations. 5. Valueall black, - Large property managereversed to white, or in PMS 280 Blue/PMS 7543 Gray spot or 4/color applications. UNACCEPTABLE COLOR USAGE and managers can track income and ex- and small size property managers and Please see belowthat for specific useRentegraexamples. ment companies use 3. for Simplified - Owners pense each unit,Accounting property and compa- independent rental owners can DO manage DO NOT put over a busy background DOfor NOT change theforms color NOT alter in any way tion.com only • No other colors are acceptablegeneration for use for the logo. and managers can track income and OR-RTG-20 Oregon

CHECK-IN/CHECK-OUT CONDITION

REPORT

TENANT(S): ___________________ ______________________________________ _________ ADDRESS: ___________________ _____________________________UNIT: ______________ CITY: ___________________________________ STATE: ________ ZIP: _________________ OR-RTG-24 Oregon

PET AGREEMENT Rating Scale

= (E)Excellent (VG) Very Good

TENANT INFORMATION

(G)Good (F)Fair (P)Poor

IN Out TENANT(S): ____________________________________________________ DATE:________ LIVING AREAS ADDRESS: ____________________________________________________ UNIT: _________ KITCHEN CITY: _________________________________________ STATE: __________ ZIP: _________ Walls

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BEDROOM 3

Walls

DESCRIPTION OF PET(S) Windows

Light Fixtures

Dishwasher

AGREEMENT

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Locks

Light Fixtures

Doors/Woodwork

Locks

Rods

Walls

Stove/Racks

Fan (Exhaust) Doors/Woodwork

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Electric Outlets Ceilings

Cabinets

Light Outlets Electrical Fixtures

Sink

Ceilings

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Blinds/Drapes

Fireplace Plumbing

BATH ROOM

Towel Bars

Electricity

Sink & Vanity

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Hot Water

Smoke Detectors

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Walls

Windows

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permission.

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Fan (Exhaust)

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Locks

Ceilings

Electrical Outlets

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may be reproduced without written

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Smoke Detectors

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Heating

Electricity

Hot Water

Smoke Detectors

and mail.

Doors/Woodwork

Windows

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Post and Mail:

if served by post

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Floor

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Floor day for compliance

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Carpet/Vinyl/Woo

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______________________________ Floor Tenant ______________________________ Light Fixtures Tenant

Ceilings

Pursuant to RCW 59.18.150, this is your WA-RTG-20 Washington 48 hour entering the dwelling notice that your

landlord or their agents unit and ______________________ premises located at (Address) will be CHECK-IN/CHE ______________________ CK-OUT CONDIT ION REPORT___________ on

Garbage Cans

Electrical Outlets

________ UNIT: _________ __________ ZIP: _________

48-HOUR NOTICE OF ENTRY

Windows

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Floor

Windows 1) The pet(s) shall be on a leash or otherwise under tenant’s control when it is outside the Antenna/Cable tenant’s dwelling TV unit. Blinds/Drapes 2) Tenant(s) shall promptly pick up all pet waste from the premises promptly. Fireplace 3) Tenant(s) are responsible for the conduct of their pet(s) at all times. 4) Tenant(s) are liable for all damages caused by their pet(s). Cleanliness 5) Tenant(s) shall pay the additional security deposit listed above and/or their rental agreement as a condition to keeping the pet(s) listed above. 6) Tenant(s) shall notBEDROOM allow their pets to cause any sort of disturbance or injury to the 1 BEDROOM 2 other tenants, guests, landlord or any other persons lawfully on the premises. Walls 7) Tenant(s) shall immediately report to landlord any type of damage Walls or injury caused by their pet. Windows 8) This agreement is incorporated into and shall become part of Windows the rental agreement exe Blinds/Drapes -cuted between the parties. Failure by tenant to comply with any part of this agreement Blinds/Drapes shall constitute a material breach of the rental agreement. Rods

________ STATE:

_ Light Fixtures TENANT(S between the hours ): ____________________ (Date) of and ____________________ Doors/Woodwork ADDRESS: . ____________________ __________ (Time) ________________ (Time) ____________________ CITY: Locks____________________ The entry ________UN will occur for the following __________ _____ STATE: ________purpose:IT: ______________ ___________ Rating CeilingsScale = (E)Excellent ZIP: _________________ ______________________ (VG) Very Good___________ ______________________ ___________ (G)Good ___________ (F)Fair (P)Poor Electric Outlets IN ______________________ _______________________ Out LIVING AREAS ______________________ In Out _ KITCHEN In Out Walls

Cabinets Tenant(s) Tenant(s) certify that the above pet(s) are the only pet(s) on the premises. Ceilings understands that the additional pet(s) are not permitted unless the landlord gives ten Sink ant(s) written permission. Tenant(s) agree to keep the above-listed pets in the premises Electrical Outlets subject to the following terms and conditions: Floor

_____________________________ Floor Landlord

______________________

Blinds/Drapes

Ice Trays

Carpet/Vinyl/Wood 3) Type _______________ Breed _______________ Size ______ Age __ Weight ___ Color ____ Name ________ Disposal Vaccinations: Yes____ No____ License Number: ______________ Doors/Woodwork

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Additional Security Deposit Required:$

WA-RTG-40 Washington

48-HOUR NOTICE OF ENTRY

TENANT(S): ___________ ______________________ ADDRESS:

The Yardi Matrix apartment information service is a high-performance system with the sole function of supporting the commercial apartment industry’s dominant participants. The company's services monitor the 50+ unit apartment universe from the property level to the submarket/ market level in a form unique within the commercial apartment information industry.

of this form may

be reproduced without

written permission.

Rental Housing Journal Arizona · March 2018

Rental Housing Journal Arizona

How to Build Wealth Through Apartment Investing by Vinney Chopra

partment investing is an excellent way to build wealth because of the strong cash flow that is provided by owning multiple apartment rental units. This type of investing builds wealth much faster than owning a singlefamily home because you have multiple tenants paying each month and a greater cash flow to use to grow your business. And that is the key. How to grow your apartment investing business so that you build real wealth into your life. I learned early in my investing career when my wife and I bought our first apartment building about 30 years ago and kept on purchasing lots of them over the years. It was in 2004 that I became a real estate broker in California and wanted to scale up. At that time the singlefamily investing route seemed daunting and very hard. You had to acquire single-family homes across many states, and then manage them effectively and efficiently. That’s when I discovered the advantages of apartments and have never looked back. It’s been a very exciting and profitable journey even since. The following are seven steps to

building wealth through apartment investing. 1 – Debt leverage It’s only real estate where the banks, financial institutions, insurance companies, Fannie Mae and Freddie mac are willing to partner with you and give a loans up to 65%-80% of the value of the real estate you are purchasing. You have to only put down a 35% to as low as 20% to control the investment. Let’s look at stocks, bonds, precious metals and even crypto currency, none of the above mentioned groups will be willing to give loans to purchase these.

7 To-Do’s ...continued from 1

checking whether it drains without leaks. Promptly turn to a roof cleaning and repair specialist if interior leaks are noticed. Additionally, natural debris - such as leaves and branches - can easily collect on the roof during the winter, which makes the spring a good time to schedule a roof cleaning service. Gutters and Downspouts – With strong winter winds, gutters will have likely accumulated sediments and debris. Check in with your trusted gutter cleaning specialist and schedule a cleaning service. Foundations – If your property has an exposed brick or concrete foundation, check for cracks and signs of deterioration. Turn to a foundation professional for necessary repairs to guarantee that the property is properly and safely sealed. Windows – Entryways and Thresholds. Window sills and entryways can easily develop cracks. Those cracks make it possible for critters to enter the property while also contributing to straining the heating, ventilation and air-conditioning (HVAC) system as a poorly-insulated property fails to retain a desired temperature. A professional handyman can easily reseal cracked thresholds. Caulking – Similarly to entryways and windows, exterior caulking can wear off as a result of harsh weather exposure. To guarantee that a property is properly insulated, a professional should check the conditions of exterior caulking and re-caulk deteriorated areas.

7. Siding – A cleaning and pressure washing specialist can assess the conditions of a property’s exterior siding and recommend whether it should be thoroughly cleaned. Cleaning dirt and debris from siding keeps mold and fungi from growing. 7 Rental Property Maintenance To-Do’s For Summer 1. Air Conditioning System – Ensure your tenants will be able to enjoy a functional air conditioning system in the summer, so check now instead of waiting for them to call later. An HVAC specialist can check whether the air conditioning system is in optimal shape and clean condensers and evaporators from debris that naturally accumulate after the air conditioning is not being utilized regularly. 2. Painting – Good rental property maintenance includes tending to worn and discolored walls, doors, windows, fences and porches is a perfect activity for the spring. A professional can get your exteriors back to like-new condition with a fresh coat of paint. 3. Window and Door Screens – All screens should be thoroughly checked for tears, as they represent an easy point of entry for those bugs and critters that start showing up as the weather gets hotter. Older, loose and worn screens or frames should be promptly replaced to avoid the annoyances of bugs’ activities within the home.

Rental Housing Journal Arizona · March 2018

Real estate is an excellent vehicle of wealth building due to “debt leverage”. 2 – Cash flow Cash flow is king especially when it comes to apartment investing. By purchasing the asset in good job growth and better economic markets we realize cash flow on day one of purchase after acquiring with attention to details, due diligence and the actual performance numbers. It’s much better to have the investment that pays you daily rather than speculate on the increase in value over time. We should definitely look at the cash flow generating assets as we

4. Porches and Fences – Wooden fences and porches should be treated with protective sealant every four to six years. A professional can assess the condition of porches and fences to recommend necessary treatments, which protect wood from the cracks, warping, rotting and discoloration that can happen as a result of wet weather and/or direct sunshine exposure. 5. Decks – Especially in older properties, exterior decks can begin to wear down, rot and become unstable and unsafe. A specialist can check the conditions of a deck’s structure and recommend necessary repairs to ensure that tenants can safely enjoy spending time outside as the weather gets warmer. 6. Landscaping – If your property is surrounded by greenery, a profes-

purchase them. 3 – Depreciation Depreciation is one great benefit of owning real estate. It’s a paper loss. Even though the asset is making cash flows due to collection of rents minus expenses and mortgage, we are able to depreciate the structures (usually 70- 80% of the value of the apartment buildings) over 27.5 years straight line. There are other avenues where we can deduct larger depreciation amounts through “cost segregation” in the first 5 to 15 years thus giving us more tax benefits. 4 – Taxes As mentioned above, owning apartments is a tremendous tax benefit. Like running a business, we are able to deduct all the expenses incurred in running the management of the apartment, and the benefit of deducting the depreciation, many times brings losses at the bottom line. This happens even when there is a lot of net income generated during the years of performance. This is a huge benefit that is not realized in other means of investing. 5 - Appreciation of property You can force appreciation in ...continued on page 4

sional should be hired to trim overgrown vegetation, remove debris and leaves, and inspect plants that are actively growing on the property’s structure or fencing. This allows for vegetation to grow neatly around the property, which is both aesthetically pleasant and safe, since overgrown surroundings make for perfect living spaces for pests and other wildlife. 7. Garden Sprinklers – If you rely on a sprinkler system to maintain your property’s lawn check it after it was unused for several months and before it starts beings used often. A professional can check for leaky valves, inefficient lines, water pressure levels and faulty sprinkler heads. •

Rental Housing Journal Arizona

Multifamily Managers and Marijuana: Caught in a Pot Crossfire Ellen Clark

he Grace Hill training tip of the week focuses on the issue of marijuana and multifamily property managers and owners. Editor’s Note: “Grace Hill worked with our attorneys at Haynsworth Sinkler Boyd on this piece. We are grateful for their insights and expertise in navigating this tricky topic!” Multifamily property managers are often caught in a pot crossfire between state and federal laws when it comes to marijuana use in apartments, especially in states where marijuana use is legal. Of course under federal law, marijuana possession is illegal. Pursuant to the Controlled Substances Act, it is classified as a Schedule I substance, which are defined as drugs with no currently accepted medical use and a high potential for abuse. According to the Office of National Drug Control Policy, marijuana is the most commonly used illicit drug in the United States. Multifamily housing providers are generally permitted to prohibit the use or possession of marijuana as part of a smoke-free policy, but consider being explicit about marijuana in your smoke-free policy. However, thirty (30) states plus the District of Columbia have legalized marijuana either for recreational or medicinal uses. This conflict between federal and state law creates confusion in the multifamily property management industry. As you face questions about marijuana use, it may help to keep in mind that federal law supersedes state law. Among other things, this means that you are not obligated to “permit” breaking federal law to allow a resident to do something that is legal under state law. Marijuana and implications for multifamily properties • Multifamily housing providers are generally free to prohibit the use or possession of marijuana as part of a smoke-free policy, even in states where recreational or medical marijuana use is allowed (but see below explanation regarding accommoda-

tions). Consider being explicit about marijuana in your smoke-free policy. Articulate a clear enforcement plan and apply the policy consistently to all prospects and residents to avoid discrimination claims. • Under the Quality Housing and Work Responsibility Act of 1998 (QHWRA), many HUD-assisted housing owners must deny admission to assisted housing for any household with a member determined to be illegally using a controlled substance. The QHWRA also permits owners to evict current residents for their use of marijuana. Marijuana and disability If you receive a request for an accommodation for medical marijuana use based on a tenant or applicant’s disability, you should proceed carefully. The law on this issue is evolving rapidly, and it is advisable to seek legal counsel on these requests. The FHA is clear that a disability “does not include current, illegal use of or addiction to a controlled substance.” However, a tenant may be taking medical marijuana to treat a condition that is considered a disability. Even if a person has a recognized disability, there are reasons that an accommodation to smoke marijuana might not be considered “reasonable.” For example, an accommodation that allows conduct in violation of a federal law constitutes an undue burden. Further, other problems exist such as second-hand marijuana smoke traveling

through ventilation systems and bothering residents in common areas. However you proceed, be consistent with all prospects and residents in similar situations. This is just the tip of the iceberg on this topic, and a lack of relevant case law makes it tricky to navigate. The courts will likely address this issue in the coming years and provide some clarity. Until then, consider your policies carefully, and err on the side of consulting an attorney as you face marijuana-related issues at your multifamily properties. A Colorado law professor gives his view In addition to these tips above from Grace Hill, Sam Kamin, a law professor and director of the Constitutional Rights and Remedies Program at the University of Denver’s Sturm College of Law in Colorado, posed several questions on this issue for multifamily owners and property managers in a recent article from the Urban Land Institute. He states that getting a federally backed loan from a bank or lending institution means the property owner taking out that loan must agree to abide by all federal laws, such as those including marijuana use. “Could a federal agent arrest a property manager for knowingly allowing medical marijuana use in an apartment unit? If the owner established a policy that allowed for observation of state rights—despite the federal conflict—could the principals be

arrested? The answer appears to be yes, albeit unlikely. Property owners who allow marijuana on their premises also risk losing their buildings to the federal government through civil forfeiture cases. “The federal government isn’t actively doing that, but it remains a remote possibility,” says Kamin. One might argue that “the safest course is to prohibit all marijuana,” says Kamin. “Amendment 64 explicitly gave property owners [in Colorado] the right to exclude marijuana from their premises. Landlords can put in the lease that a tenant [must] not possess marijuana, not grow marijuana, and not smoke marijuana, and that would be permissible.” Also in the article, Alex Kreit, a law professor at the Thomas Jefferson School of Law in San Diego and author of Controlled Substances: Crime, Regulation, and Policy (Carolina Academic Press, 2013), says, “I think it is a state-by-state question of whether there are any potential discriminationtype protections that might apply to medical marijuana patients. “In a state with explicit protection, there is the further question of, ‘Do you have to accommodate everything this patient wants to do, or would it be enough to say they have to consume the medicine in the form of an edible product?’ And if so, are you discriminating by treating consumers differently in allowing exceptions to the lease limitations and compounding your potential liability?” For landlords and building managers dealing with complaints from tenants regarding marijuana smoke, stepping in as quickly as possible to work out a solution may be the best course of action to avoid an escalation of the situation. “My take is that it is probably not that dissimilar in many ways from any other kind of landlord/tenant dispute,” Kreit said. “At the end of the day, I imagine that to the extent it is at all possible, you’re probably better off trying to resolve the issue without it becoming •

How to Build Wealth ...continued from 3 apartments. One way to force appreciation is to buy a poorly managed apartment complex with rents below market and then price accordingly. By improving management and raising rents to market rates, you increase the value of the property and your return greatly increases from the investment. If you buy in strong rental locations, you will benefit from low vacancies also. As the neighborhoods improve due to more businesses moving to the area and pent up demand for the rentals, the market rents increase and the cap rates go down which also gives a boost to the value of the apartments. 6 - Debt pay down This is a great benefit. As the rental income and other incomes are collected monthly in apartments, the mortgage 4

(interest on loan and the principal) is paid out monthly. Consequently, the loan balance amount is decreased monthly which is called principal (loan or debt) pay down. If we keep the asset over 30 years and pay down the debt for that long, we will own the apartment complex free and clear. Mind you it all got paid for by the rents collected with no money out of pocket. 7 - Appreciating rental rates in the future This is another great benefit. As the market improves where the apartment is located, a two- percentto four- percent rent growth is usually expected. In certain hot markets the rent appreciations can even go as high as seven percent- to nine- percent for few years. But it is prudent to take a

conservative approach and keep this appreciation to lower percentage. I sincerely hope that you saw the major advantages in apartment investing, often called multifamily investing. With millennials liking portability and the down-sizing of the Baby Boomers population the demand for apartment rentals is predicted to be strong and sustained for a long time. Vinney Chopra is the Founder and CEO of Moneil Investment Group and President of Ideal Investments Group. His latest accomplishments include acquiring 12 multifamily assets in the last 28 months, worth $132 million. His last two syndications were sold out in just a few hours, and one in 36 hours raising $4.7 million and another one $6 million in eight hours.

Between the two syndication companies he founded, Vinney’s team is controlling over $200 million worth of assets. He is a mechanical engineer. After entering USA with $7, he graduated from The George Washington University with Master’s in Business Administration in Marketing, he shifted his focus to marketing and motivation. He was a professional fundraising consultant and motivational speaker for more than 35 years with a wonderful private company. Vinney and his wife started their real estate investments in 1983. Many times, people call him “Mr. Enthusiasm” or “Mr. Smiles.” He likes to bring great value to everyone he comes in touch with. He likes to add value to everyone around him. You can also reach him at vinney@ vinneychopra.com.

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Rental Housing Journal Arizona · March 2018

Rental Housing Journal Arizona

Millennials' Expectations Driving Maintenance Changes by John Triplett, Rental Housing Journal

work get done faster. “They’ll be able to get help from vendors or other staff, leverage past solutions, plan for the future, and ensure that customer issues are not lost or fixed too slowly. In addition, you'll be able to provide better communication with your residents. Remember, it's not just the solving of the problem that matters, but also the communication of the resolution.

igh turnover in the maintenance ranks is a problem in multifamily housing, especially among millennial maintenance personnel. They like easyto-use technology applications on their smart phones and not old paper-based maintenance processes. That is why the company, Facilgo, did the study to research these questions. • How do millennials' expectations for faster maintenance affect property management maintenance organizations? • Are millennial maintenance personnel leaving multifamily due to the lack of technology solutions available in their day-to-day jobs? What can be done to retain them? • What strategies are companies using to make their maintenance processes more efficient? • How will these new strategies help retain millennial maintenance personnel and satisfy millennial residents? • What will happen if companies don't do anything to cater to millennials' needs? In an interview with Rental Housing Journal, Ken Murai, founder and CEO of FacilGo said, “There is a greater degree of expectation that we respond faster, we communicate better, and we get things fixed quickly. “And if we don't, then they're going to shout from the mountaintops through social media to let us know about that, and that's really putting the pressure on making sure that we do a good job the first time,” Murai said. Fighting turnover among millennial maintenance employees “There's so much turnover in the maintenance ranks right now that executing company processes needs to be really easy for staff to do. In fact, they almost need to be trained as a part of doing the process. “Paper and pencil and running back to the maintenance shop to log something on the computer, it's just not going to cut it,” Murai said which is why he founded the company. “The thing I'm hearing from a lot of the larger owners whenever we talk about maintenance and turnover, is that staff turnover is so high and that makes them frustrated. The thing that's really astounding is that they'll hire someone and train them but after six months, they'll quit and move to a different industry because the work environment is paper-based. They're using their phone for social stuff, communicating, entertaining, getting things done, and then they get to their job and they're handed a clipboard. It's really demoralizing and frustrating for them,” he said. Millennials’ expectations driving maintenance change To be a successful and continual improve, there needs to be “support for the entire process from start to finish. You need to use mobile devices

or computers within the process to capture pictures and comments in order to get the job done,” Murai said. “Use that documentation to communicate with your residents because it's not just fixing the problem that's important. You have to fix it and communicate well about it, or else nobody's going to be happy,” he said. “The problem that we're seeing with other solutions out there today is that they may solve one piece of the puzzle. If you don't build a process that leverages one step to the next, it becomes disjointed and is tough. You're having to redo things and not do things efficiently. Even if you stitch together a bunch of solutions, it will be far from optimal. Even if you usie one of the large property management solutions and they have some of the functionality needed to manage maintenance, they still may lack the ability to “help” your employees follow your process from one step to the next; it’s still a problem. Lack of innovation was most surprising find in the study Murai said the most surprising lesson from the study was “the lack of innovation.” “After I left Realpage and was doing other consulting work, I hadn't paid attention to all the different efforts that were happening with maintenance and procurement systems. When I was asked to look at the maintenance and procurement market once again, I saw that there really hadn't been much evolution in the systems since I left the space. “I think we've seen a lot more evolution on the leasing side of the business, but on maintenance and operations, it's been a part of the business that has been left behind. There is so much more that can be done. In FacilGo®, we have a great system, and we're finding that by supporting the entire operational process, we can really help people get things done more efficiently and get the right things done.”

Most maintenance transactions are service related “What I found from analyzing multifamily data is more of the transactions are service-related than product-related, especially for turns,” Murai said.

Rental Housing Journal Arizona · March 2018

“We've built our platform to work with services in a way that other platforms do not. “For example, with floor covering, we handle not only scheduling the service, but also include pricing, your negotiated price per square yard, your floor plan measurements, the amount of carpet needed for a given floor plan by room, seaming diagrams, and you can order by the room with accurate measurements rather than having to do a full replacement. Everybody else does estimates. We have your company’s flooring information accurate, down to the room,” he said. And the applicable flooring can be purchased directly through his company’s app. “We have a mobile-enabled website and a web application. So, we have everything you need, wherever you need it, to get the job done. Describing his pricing, Murai said, “Our pricing model is unit-based pricing, and very dependent on what solution modules our clients utilize. Some solution modules can be used very cost-effectively, or you can use our entire suite. “We have several mid-sized multifamily and single-family home customers, and we're actually on track to start part pilots with several larger multifamily customers this quarter. We also have some of the largest suppliers in the industry on the platform,” Murai said. Question and answer with Ken Murai Q: How do millennials’ expectations for faster maintenance affect property management maintenance organizations? A: Our challenge is to get maintenance issues solved more quickly and efficiently than ever before. If not, we are going to hear about it on social media. How do you speed up you processes and improve communication with your residents? You need to have the people and tools to help you track, document, assign, and get the right products/services/work done, and you need to help them collaborate. “People need to know what to do, when and how, as well as get access to the right help when the time is appropriate. Instead, maintenance staff often spend a lot of time figuring out what they need to do or buy. “This is heightened when you have new employees, since they don't know what to do. By providing them with tools that guide them to work with the right people, buy the right things, document problems and solutions with pictures, etc. it will help them get the

Q: Are millennial maintenance personnel leaving the multifamily industry due to the lack of technology solutions available in their day-to-day jobs? What can be done to retain them? A: Millennials use their phones to socialize, communicate, entertain themselves, and get things done. Millennials are the top smart phone users with Facebook, Facebook Messenger and YouTube (according to Nielson) being the top 3 apps. The Bank of America Trends in Consumer Mobility report interviewed 1,000 adults and found that smartphones were more important to millennials than deodorant. These devices are an integral part of millennials' daily lives. In speaking to various management companies, we have anecdotally heard that many recently hired millennials quit their jobs to move into jobs in other industries. Why? Because, they were frustrated by the lack of tools on their smartphones that the property management companies provided to get things done. They hate using paper and property management is full of paper processes. Who is going to hire them in the future based upon their expertise in running a paper based process? As a result, the millennial workforce will continue to migrate to other industries that have tools that allow them to do their jobs more efficiently unless we as an industry evolve. As a starting step, many companies are starting to adopt “bring your own phone policies.” While this means that pictures and texting are being used for communication and tracking, the lack of integration of this information into ...continued on page 6 5

Rental Housing Journal Arizona

Millennials' Expectations ...continued from 5 their property management systems means that information is isolated, collaboration is difficult, and tasks are left undone. In other words, it’s a good baby step, but this like any other siloed system doesn’t provide nearly as much help as a collaboration platform. Q: What strategies are companies using to make their maintenance processes more efficient? A: The best companies are focusing on supporting an entire business process instead of providing point solutions that help solve a sliver of that process. That means they need to be able to support multiple processes (not just ordering or invoice processing or inspections or work orders). For example, one company we spoke to talked about using an application to do due diligence inspections. At the end of the process they had a lot of great pictures and data, but then didn't know what to do next, since the data resided in their app, and didn't support any of their other processes or work with their property management system. The most efficient companies are using software platforms that support the entire maintenance process where they collaborate with their staff and suppliers, and leverage past data to make the process more efficient. Inspections lead to work orders, quote requests or orders and everything is tied together. Being easy-to-use, they require less training and support, and guide the staff through the process. So, you’re getting the benefit of requiring little training on the application and the process! That’s something that not just millennials want, but all people in the organization. Another comment on mobile. Given

that real estate is a distributed operation, mobile applications are required so people can get the work done at the location where the issue exists. With mobile, staff and suppliers are able to record notes, take pictures and record them in a system where the information can be shared, trigger additional actions and used for reporting. Some of the baby steps we are seeing companies take are policies that allow staff to text each other and their vendors with messages and pictures. It’s a start, but the information is isolated on a person’s phone and isn’t leveraged for future actions by the entire organization. We're also seeing some companies adopt virtual turn boards using Google Spreadsheets or Microsoft Sharepoint. Again, it’s a great solution that solves one piece of the pie, but often falls short around updates and scheduling. We believe that it’s most efficient to have virtual turn boards that tie into your turn schedule, inspections, work orders, quotes, contracts, orders, and invoices, which allows you to support your entire process. We’ve also seen a trend for companies having maintenance personnel handle more units than before and they aren’t necessarily outsourcing more work to vendors. Unless they provide tools and software that makes them more efficient, they will both slip on their quality of service and lose residents. We’ve also seen some outsourcing tasks to key vendor partners, but those who are doing so tend to be smaller property management companies with smaller properties. Q: How will these new strategies help to retain millennial maintenance personnel and satisfy millennial

residents? A: Nielsen reports that 97-98% of millennials have smart phones. They are using them for social media, messaging, YouTube, maps, search and more. They are constantly on their phones and can’t stand using paper or the dusty old PC in the maintenance shop. “If you are thinking of allowing them to use their phones to text and take pictures, just remember that if their phones are not connected to the rest of the property maintenance platform, they’re going to have to use some paper and transpose that data into a computer. It’s wasteful, they know it, and it’s frustrating. Plus, it doesn’t help them gain the skills to help them be competitive with future jobs. By using mobile and web software that helps support the entire maintenance process, you’re able to help your staff get things done faster and more efficiently and communicate much more effectively. Who doesn’t want have the satisfaction of getting things done. And, if they’re happy, they’ll stay. Q: What will happen if companies don't do anything to cater to millennials' needs? A: Millennial staff become frustrated when using antiquated methods. Tools that support their entire process and help them collaborate not only allow the maintenance personnel to have more job satisfaction, they are more efficient, collaborative and social, and learn faster. Just using their phones is the first step, but being able to use their phones to work with existing processes is what they are looking for, and what will keep them from running away to other industries that use more technology. Continuous improvement leveraging tools is key to retention

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Ken was the Vice President of Product Development and Client Management at OpsTechnology, where he was responsible for designing and developing the OpsTechnology product and oversaw its client management team from initial deployment to acquisition by RealPage and beyond. Ken has experience creating procurement organizations and managing strategic technology initiatives for executive teams in the multifamily industry. Ken graduated from the University of California, Davis with a B.S. in Electrical Engineering, and an M.B.A. from the University of California, Berkeley, Haas School of Business. He has been working in the technology industry for 25 years, in areas including product development, sales, marketing and management. FacilGo® provides a solution to property management organizations who are frustrated by their turn and maintenance processes. Our property maintenance platform and private marketplace streamlines operations and saves money by offering an integrated inspection to invoice process through which you manage your turns and maintenance processes. Unlike other software that provide piece-meal solutions, FacilGo® offers an integrated process where your staff is presented with what to do and buy based upon their inspection and work order results. Instead of spending time figuring out what to do, staff can spend time collaborating with suppliers to get things done.

◆ NEW

Q: How does FacilGo® help property management companies and their suppliers not only operate more efficiently, but also help improve maintenance personnel's job satisfaction? A: “FacilGo® is built to support the entire turn and maintenance process from when you identify a problem, figure out how to solve it, get the work done (with internal or external staff) and order parts, process the invoice and payment, and then charge back residents. “We believe that a platform must do more than one step of a process. In fact, your software should leverage one step of the process to help you with the next step, so your staff does the right thing quickly and efficiently. “We find that companies initially adopt some of our easier-to-implement solutions like inspections and move out closing statements, then start adding on work orders, contract management, procurement, invoice processing, fixed asset, and inventory management. We also have functionality such as budgets, supplier ratings, job cost and CAM charges, so we offer a very robust set of features and functions to support your operations and maintenance processes.”

Advertise in Rental Housing Arizona Circulated to over 6,000 apartment owners, on-site and maintenance personnel monthly. Call 503-221-1260 for more info Rental Housing Journal Arizona · March 2018

Rental Housing Journal Arizona

Job Gains Foster Heightened Economic Growth; Increased Completions Ease Rent Gains NMI Rank 13, down 1 place

Phoenix will step down one rung in the Index as development

Employment up 2.6%

The metro’s unemployment rate will continue to compress as 53,100 employees will be added to payrolls in 2018. This follows a 2.1 percent increase in employment one year earlier when about 42,000 jobs were created.

Construction 8,400 units

The pipeline contains over 8,000 rentals scheduled for delivery this year, the most since 2009 when 8,700 units nished. Last year, 6,600 apartments were completed.

Vacancy up 60 bps

With the metro gaining its highest number of completions since 2009, vacancy will jump to 6 percent in 2018. Last year the rate climbed 100 basis points, which was the largest lift since 2009.

Rent up 4.6%

As demand amplies, the average effective rent will rise to $1,034 per month in 2018, the rst year that rent growth has not exceeded 5 percent since 2013.

Investment

Investors expect vacancy to stabilize as demand elevates, creating lucrative options for buyers seeking properties with needed operational improvement.

reaches its highest point since 2009.

6 Types of Fencing ...continued from 2 out that vinyl is not as strong as wood, and it can easily collapse due to harsh weather or impact. The plastics utilized are cold temperature-sensitive and can become brittle, which is why vinyl is not ideal for areas where cold and harsh weather is common. One last issue is that the manufacturing processes behind vinyl production are not very environmentally friendly. Aluminum ideal for decorative fencing for your rental property Aluminum is known for its malleability, which is indeed why it is widely utilized to craft decorative and elegant fencing. Also, it is lightweight and easy to clean. Aluminum fencing is generally similarly priced to vinyl, but it is important to keep in mind that this bargain could be offset by repair costs: Aluminum is delicate, and while they’re fairly easy to repair, our experts find that bends and dents are common. Aluminum is ideal for beautiful decorative fencing, but it is not the best option for privacy and safety as it is not made to provide significant shielding. Chain-Link fencing for your rental property Chain-link is a very simple and inexpensive kind of fencing, making it ideal for very large spaces or pens, especially for pets. Installing chain-link fencing is also simple and fast.

Chain-link is not very sturdy and does not offer much privacy, which is why it is not the best choice for residential properties where tenants and/or property managers are wanting a fence that offers protection and privacy. When it comes to maintenance, the thin links of the fence and their junctions are vulnerable to rusting and corrosion. Vinyl coating can extend the life of chain-link, but most people opt for a complete replacement when wear and tear becomes evident. Wrought iron is made to be durable while looking beautiful. It can be molded to create elegant styles, and the natural strength of the iron makes it a good option for a secure fence that won’t need much maintenance over the years. Wrought iron can develop a patina as it ages and oxidizes, which some find appealing and some do not: if desired, this can be addressed by having a professional restore the iron with appropriate treatments. While wrought iron makes it possible to save money on regular maintenance, in most cases it is the most expensive fencing option available. Installing heavy-duty iron fencing is also a workintensive project that should be left to a professional. Wrought iron can rust easily in regions where the weather climate

Rental Housing Journal Arizona · March 2018

Development climbs further as household growth doubles the national rate. Phoenix will record healthy employment growth headlined by nance and insurance employers in 2018, while hotels, bars and restaurants continue to be a constant behind the city’s ourishing economy and robust household formation this year. In 2017, Phoenix gained approximately 100,000 new residents with about 20 percent consisting of 20- to 34-year-olds. The growing number of young professionals will persist, resulting in strong housing demand and escalated completions this year. The Biltmore area and neighborhoods adjacent to the Arizona State University campus in Tempe will experience the most construction activity with a combined 3,000 units slated for delivery in the next four quarters. Although the substantial ow of new units will result in a vacancy hike this year, net absorption will be fueled by in-migration. Satisfying returns preserve investor

interest. Last year, rents in Scottsdale, particularly near Old Town, noted considerable boosts. In the past, buyers have found lucrative opportunities in this area thanks to its ability to push rents and generate strong revenue growth. Cap rates in South Scottsdale are typically in the high-5 percent range and the submarket will remain a highly sought location for acquisitions. While investors have posted favorable initial returns in the East Valley, they have also found success in western suburbs such as Glendale. Here, buyer interest will remain strong due to steady rent growth and value-add opportunities. In recent years, Glendale has consistently logged rst-year yields stretching across the 6 percent expanse. As the apartment market fundamentals remain heightened, the bidding environment will stay competitive with excess capital chasing limited listings.

is wet. Rust develops where the iron is most worn down, which makes it essential to fix scratches and chips as soon as one notices them. Brick and stone a serious investment Having a fence built with cement and bricks or stones is going to be one of the much pricier options available for fencing. While those fences are unaffected by weather and most other common sources of tear and wear, they require quite a lengthy and work-intensive

installation process, and they can’t be easily modified, making expansions or alterations an issue. Our maintenance professionals point out that opting for brick and stone fencing is a lengthy commitment and a serious investment.

•

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Rental Housing Journal Arizona

Dear Maintenance Men: by Jerry L'Ecuyer & Frank Alvarez

shower. We come back 24 hours later and reinstall all the fixtures. One more thought; if you have sliding shower doors for your tub, check the bottom track. If it is loose, do not caulk until the track is removed, cleaned and dried. Reinstall the track with new adhesive caulk to hold it down and caulk the edges to keep the water out.

Dear Maintenance Men: One of the maintenance chores I do are caulking and sealing shower/tub fixture flanges and shower walls. My problem is getting the caulking to dry before a resident uses the shower. Any Suggestions? David Dear David: A lot of people will say: “Just tell the resident not to use the shower till the caulking is dry”. Well it doesn’t work and by the time you are driving away from the building, your resident is already taking a shower and your fresh caulking is washing down the drain. Your caulk should cure at least 24 hours before use. Water based latex caulking is easy to use, but very susceptible to water until it is cured. Try using a silicone or

polyurethane based caulking for doing tubs, showers, toilets, sinks or other wet locations. It tends to set quickly and will repel water during its cure time. Another solution we have found works well with very busy showers is

to remove all the fixtures, including the shower head & arm, valve handles and tub spout, before caulking. (A bit extreme, but effective) We then plug the shower head and tub spout with a capped pipe. Then caulk the tub/

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Dear Maintenance Men: My building gets hit by graffiti on a regular basis. How can I stop this curse? Jim Dear Jim: We understand. Our company maintains several properties that attract graffiti like a magnet. There are several solutions that may help. 1. Painting over graffiti as quickly as possible will help deter future vandalism. We recommend painting ...continued on page 9

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Rental Housing Journal Arizona · March 2018

Rental Housing Journal Arizona

The Outdoor Furniture Market is Booming! Chaise lounges and heaters are leading the way by Jeannie Flynn

nseasonably warm weather in the Southwest and below zero temperatures in the Midwest is keeping outdoor furniture an patio accessories on the minds of apartment managers and rental property owners across the country. Trends and popular styles are ever changing, but the in-fashion patio furniture look for this year is Nantucket, cool, carefree and comfy. We’re seeing navy blues, and cool grays popped with reds and yellows as the popular color pallet for many new projects. Chairs Adirondack chairs, a classic look for Summer furniture, are more popular than ever. The 2018 version is no longer made from clunky, heavy wood. Instead these popular chairs are now manufactured in a long lasting “faux wood” -- a high-density polyethylene (HDPE) product. Available in traditional and contemporary designs, Adirondack chairs are comfortable, colorful and add additional seating to your pool, deck and other outdoor public areas. Eco-friendly “faux wood” products are typically made of recycled plastic. This durable, long lasting material is

easy to clean and will withstand the extreme elements, proving to be a smart amenity investment for your properties. Whether Adirondack chairs are you’re choice or not, make sure that you always ask for commercial rated products that offer commercial liability insurance and warranties when purchasing patio furniture and accessories for your apartment community or commercial buildings. Heaters There are many outdoor heaters available on the market today. How to find the best product for your patio is the key. Whether it be electric, natural or liquid propane, there are a variety of options. Heaters are not always about heat.

Fire is alluring and draws attention to a location. Sometimes they are designed for ambiance or to be used as outdoor signage at night. When shopping for heater, I suggest that you keep these questions in mind: • How many BTU's (British Thermal Units) does a heater offer? The lower the BTU's the less heat output? • Does the heater come with a replacement parts program? • Does the heater come with a commercial warranty? • If so how many years and what does it cover? • Is there a local representative or dealer that can help you with any issues that may arise? Ask about the frames and finishes.

Are they stainless steel? If they are steel with a painted finish, are they powder coated or just painted. When it comes to commercial rated heaters, price plays a huge part on the difference between something that is built to last or something that will need to be replaced after one season. You definitely get what you pay for when it comes to really inexpensive products. In this case, if you are using a heater that is not up to code or considered to be commercial rated, you could be setting yourself up for a liability situation that could cost you much more in the long run. CMS Commercial Furniture offers the finest selection in commercial rated outdoor furniture and accessories. We've worked with many hospitality and multi-family housing properties to create revenue generating spaces and provide custom designed products to offer that one of a kind feel. All of the above combined with flexible price points, has allowed us to find our niche in this industry. www.cmsfurniture.com 480-892-3212 info@cmsfurniture.com

•

Dear Maintenance Men ...continued from 8 over the same day or within 24 hours of the graffiti appearing on your property. Graffiti vandals like to advertise. By removing the graffiti quickly, the less recognition the vandals will receive, thus making your building less attractive to graffiti taggers. 2. Install lighting in areas prone to graffiti. Motion activated lights also work well to deter vandals. (If you have a sense of humor, install motion activated water sprinklers.) 3. Planting vines or bushes along a wall or the side of the building is a good long-term solution. As the landscape grows, it will make it more difficult to graffiti your walls. 4. Use an anti graffiti paint. The graffiti will easily wash or wipe off making repainting a thing of the past. Dear Maintenance Men: I have a resident who is complaining the garbage disposal smells. I have tried running lemon slices and ice cubes to clean the disposal unit. It works for a

short time, but the smell comes back. What steps do you recommend for resolving this problem? Barbra Dear Barbra: The smell may come from a number of places. 1: The first and easiest to check is the rubber splash guard that keeps things from falling into the disposal. Remove the rubber splash guard and turn it inside out. Clean out the debris that have collected and wash with soap and water. 2: Use a small toilet type bush with soap and scrub the inside of the garbage disposal. This will remove any slime build-up. (For safety reasons, shut the garbage disposal off at the breaker or pull the plug.) 3: Remove the drain trap and clean out any sludge. Many times the horizontal pipe between the trap and the wall may have hard deposits coating

the inside of the pipe. The deposits will collect food and debris that may slow the drains considerably. 4: If you have a dishwasher, check the drain line leading from the air-gap or dishwasher to the garbage disposal. It may be full of sludge that will cause a smell to come through the air-gap located next to the faucet. Clean or replace any pipes with deposits or sludge. Check both drain lines for the above problems. 5: Now if you wish, run the garbage disposal with a few slices of lemon and it should smell good and stay that way. Once in a while, throw some ice cubes in the garbage disposal unit to help scrape away any debris. Note: 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 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 licensed contractor & real estate broker. He is currently on the Board of Directors and Past President and past Chairman of the Education Committee of the Apartment Association of Orange County. Jerry has been involved with apartments as a professional since 1988.

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Rental Housing Journal Arizona · March 2018

Rental Housing Journal Arizona

New Tax Law ...continued from 1 of taxes on pass through entities. Owners of these types of companies will enjoy a 20percent deduction on pass-through income, though there are several restrictions that will apply to this deduction. This favorable tax treatment will encourage investors to increasingly focus on after-tax yields when comparing their investment

alternatives. On an aftertax basis,commercial real estate could offer a much stronger risk-adjusted return than options such as dividend stocks and bonds. This could entice additional passive capital to flow to the sector through syndicates, partnerships and other pass through funds. This influx of capital,should it manifest, could place downward

pressure on cap rates.

Tax-induced behavior changes will be meaningful. In addition

to the direct effect the new tax law will have on commercial real estate investments,indirect effects could be equally important. The increased standard deduction and limits on local property and income tax deductions could

significantly alter housing demand and behavior. At the same time, the elimination of the personal mandate of the Affordable Care Act (Obamacare) could impact long-term demand for healthcare real estate. The new rules could also spark increased consumption spending and more business investment into infrastructure.

Executive Summary

■ 1031 Exchange: Tax-deferred exchanges have been retained for real estate. ■ Business Interest Deduction: Interest on real estate loans remains deductible for real estate investments, but using this deduction will lengthen the depreciation period for real estate assets. ■ Depreciation: Depreciation time-line remains unchanged if mortgage interest is not taken. If the mortgage interest the pass-through raised to $24,000 for on deduction is used, then married couples ($12,000 advantages, but some the depreciation time-line for individuals), and as a new investors will enter for commercial properties result the threshold home the market with direct increases from 39 years to price to benefit from acquisitions. The additional 40 years and for residential itemized deductions has capital will undoubtedly properties it rises from 27.5 increased to the $400,000 fl ow across a variety of years to 30 years. range for married couples. property types including self-storage Because the threshold has apartments, ■ Carried Interest: The hold increased well above the facilities, and retail, office time of assets increases from median home price in most and industrial buildings, one year to three years to treat but a segment that could metros, there will likely be earnings as capital gains. Tax Law Changes to Reshape Behavior, a modest reduction of first- attract a disproportionate ■ Pass-Through Income: Hold Implications Investment Real EstateBusiness owners receive of the investment time home buyers, liftingforshare a 20 is single-tenant net-lease apartment demand. percent deduction on qualified Apartment demand likely to rise. The previous tax rules created an economic Thesedeductions. assets, If the income Long-term prospects incentive to purchase a home properties. through itemized mortgagegenerated interest by passoften occupied by high- of $12,700 throughforentities such as LLCs, and property taxes married of healthcare realexceeded estate the old standard deduction credit tenants received on longa reduction but there are some restrictions. couples ($6,350 for individuals) then taxpayers to their taxable soften. The elimination leases, afford passive For taxpayers earning over income that effectively offset of the personal mandate, a a portion of the housing payment. The threshold home investors compelling yields $157,500 (single filers) and price to receive benefit naturally depended on interest rates and local property provision of thethis Affordable that could be structured $315,000 (married couples), tax rates but that was inrequired the $200,000 range for married couples. Under the new tax law, Care Act to benefit from the new is limited to greater the standard deduction has been raised to $24,000 for married deduction couples ($12,000 people to have health pass-through tax rules. of t50from percent of the taxpayer’s for individuals), as athe result the threshold home price to benefi itemized insurance, will and reduce In addition, because share of aggregate deductions has increased to the $400,000 range for married couples. Because the W-2 wages total number of insured by these types of properties paid by the business or 25 threshold increased well above the median home price in most metros, there 13 millionhas people over the generally require minimal percent of the taxpayer’s share will likely a modest reduction of first-time homebuyers, lifting apartment demand. next 10 be years. As a result, management and are of aggregate W-2 wages paid by about 5 percent fewer available in a wide range the business plus 2.5 percent Long-term of healthcare real estate soften. The elimination of the people willprospects have health of price points, they are of the unadjusted personal mandate, a provision of the Affordable Care Act that required people to basis of all insurance compared with well positioned for passive have will reduce the total number of insured byqualified 13 millionproperty people (structures the health numberinsurance, that would investors. but not land). over nextinsured 10 years. As a result, about 5 percent fewer people will have health havethe been if the Expanded expensing ■ Corporate Tax Rate: insurance that would have been insured if the personal personal compared mandate with werethe number Maximum tax rate reduced benefit mandate werewill retained. This rules will modestly reduceniche the future demand for healthretained. This modestly from 35 percent to 21 percent. care, implying a slight downshift in demand for healthcare compared with reduce the future demand real estate. Changes real estate Generous willexpensing and projections with implying the personal mandate. the aging population still for healthcare, a to the Nonetheless, Section 179 depreciation rules on capital increase demand healthcare services over rules the nextwill 10 years, just not as much as slight down shift infordemand depreciation expenditures over short-term. for healthcare real with estatethe favor several niche real would have occurred personal mandate in place. ■ Individual Tax Rate: compared with projections estate investments. Under Significant with the personal thenet-leased revisions, properties business positioned Market liquidity mandate. could rise; favorably.restructuring of personalentities taxes. Still uses Nonetheless, the aging owners will be on ableincome to fullyfrom pass-through The newly introduced 20 percent deduction seven tax brackets, but the population will still expense up to $1 million could invigorate investment in real estate. On an after-tax basis, the yields offered income span of each bracket increase formore of compelling depreciable by the sectordemand will be even than tangible under the previous tax structures. has changed and the marginal healthcare over personalrealproperty used syndicators and investNew capital services could enter commercial estate through rates have generally been the next 10 that years, not totofurnish lodgings. This ment funds arejust structured capitalize on the pass-through advantages, but lowered. Standard deduction will allow as much would will have some new as investors enterchange the market with investors direct acquisitions. The additional has apartments, been increased and with ainvestments such as occurred the personal capital willwith undoubtedly flow across variety of property types including several deductions hospitality, student housing mandate in place. self-storage facilities, and retail, office and industrial buildings, but a segment that have been eliminated or restricted. and seniors housing to could attract a disproportionate share of the investment is single-tenant net-lease Market liquidity deduct thebyfull cost oftenants■ on Estate Doubles properties. These assets, often occupied high-credit longTax: leases, af- exclusion could rise; net-leased furniture in service to benefi $11 million for single filers ford passive investors compelling yields placed that could be structured to t from the properties positioned their properties rather and $22 generally million for married new pass-through tax rules. Inat addition, because these types of properties favorably. The newly than depreciating them couples. require minimal management and are available in a wide range of price points, they introduced 20 percent multiple years. The are well positioned for passiveover investors. deduction on income from rules also extend to roofs, This report is not intended and should pass-through entities could ventilation and Changes not be to considered tax or investment Expanded expensing rules heating, benefit niche real estate. the Section invigorate investment in security systems in nonadvice. ItUnder provides interpretation of 179 depreciation rules will favor several niche real estate investments. theanrereal estate. On an after-tax residential property. This the potential effects of the new tax law visions, business owners will be able to fully expense up to $1 million of depreciable on the commercial real estate market. A basis, the yields offered by provision is largely targeted tangible personal property used to furnish lodgings. This change allow investors taxwill accountant should be consulted for the sector will be even more toward small businesses, with investments such as hospitality, student housing and seniors housing to deduct guidance on specific tax rules. compelling than under the the deduction phases rather than depreciating the full cost of furniture placedso in service at their properties previous tax structures. as business investment them over multiple years. Theout rules also extend to roofs, heating, ventilation and New capital could enter purchases exceed $2.5 security systems in non-residential property. This provision is largely targeted toward commercial real estate million. small businesses, so the deduction phases out as business investment purchases through syndicators and exceed $2.5 million. investment funds that are structured to capitalize ...continued on page 11

Tax Law Changes to Reshape Behavior, Hold Implications for Investment Real Estate

partment demand received a reduction to their likely to rise. The taxable income that effectively

previous tax rules created an economic incentive to purchase a home through itemized deductions. If the mortgage interest and property taxes exceeded the old standard deduction of $12,700 for married couples ($6,350 for individuals) then taxpayers

offset a portion of the housing payment. The threshold home price to receive this benefit naturally depended on interest rates and local property tax rates but was in the $200,000 range for married couples. Under the new tax law, the standard deduction has been

New Tax Law Savings Married

Tax Savings (Thousands)

$30

Single

$20 $10 $0 $-10 $0 $50 $150 $250 $350 $450 $550 $650 $750 Taxable Income (Thousands)

New Tax Law Makes Real Estate Yields Even More Compelling Apartment ST-Retail Retail Self-Storage Office Industrial All Equity REIT Dividend 10-Year Treasury S&P 500 Avg. Dividend AAA Bonds Baa Bonds Money Market 0% 2% 4% Average Yield (Cap Rate)*

U.S. Commercial Real Estate Investment Trends Total Transactions (000s)

60 45 30 15 0 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17**

* As of December 28, 2017 ** Trailing 12-months through 3Q

Rental Housing Journal Arizona · March 2018 2

Rental Housing Journal Arizona

Tax Reform: 2017 Tax Law Vs. 2018 Tax Cuts and Jobs Act Provision

Old Tax Law (2017)

Tax Cuts and Jobs Act (provisions effective beginning 2018)

Like-Kind Exchanges

Available under current law for property held for investment

Retained for real property only (real estate).

Business Interest Deductibility

Fully deductible for all businesses

Fully deductible for real estate businesses with some exceptions. Limits on interest deductibility apply to firms outside of real estate with exception for businesses with average annual gross receipts of less than $25 million over past three years.

Depreciation of Buildings

Residential 27.5 years, nonresidential 39 years

If the mortgage interest deduction is used, then the depreciation timeline for commercial properties increases to 40 years and for residential properties it rises to 30 years.

Carried Interest

Taxed at capital gains rates if held at least a year

Taxed at capital gains rates if held at least three years.

Business Tax Flow-through entity: Maximum rate of 39.6% REIT dividend maximum Rates rate of 39.6% Corporation: Maximum Rate of 35%

Flow-through entity: 20 percent deduction available for qualified pass-through income with some exceptions. REIT dividends eligible for 20 percent deduction. Corporation: Maximum rate of 21 percent. Flow-through entity deduction sunset after 2025. Corporate rate cut permanent.

Active Losses

Fully deductible against active income

Deduction of net active pass-through losses against wage or portfolio income limited to $500,000 (married filers) and $250,000 (single filers). Disallowed losses may be carried forward as part of a taxpayer’s net operating loss. Provision effective through 2025.

Individual Tax Rates

Seven brackets ranging from 10 percent to 39.6 percent; highest rate effective at $418,400 (single filers)/$470,700 (married filers).

Seven tax brackets ranging from 10 percent to 37 percent. Highest rate effective at $500,000 (single filers)/$600,000 (married filers). Rate structure expires after 2025.

Standard Deduction

Single: $6,350, Married: $12,700

Single: $12,000, Married: $24,000.

State and Local Taxes (SALT)

State and Local Taxes (SALT) deductible. Available deduction declines $10,000 limit on deduction of state and local taxes including property for income above $266,700 (single), $320,000 (married). tax and either income tax or sales tax.

Mortgage Interest Deduction (personal)

Deduct interest for primary or secondary residence up to $500,000 (single) or $1,000,000 (married). Home Equity Line of Credit deductible up to $100,000

Deduct interest for primary or secondary residence up to $750,000. Home Equity Line of Credit no longer deductible. Loans prior to Dec. 16, 2017, grandfathered.

Estate Tax

$5.49 million ($10.98 million per couple) exclusion, 40 percent rate, and stepped-up basis for inherited assets

Exclusion doubled. Stepped-up basis retained. Provision after 2025 and tax reverts to current law exemption amount indexed for inflation.

New Tax Law Offers Prospects of Economic Lift

conomy starts 2018 with formidable tailwind. The U.S. economy closed 2017 in a particularly strong position, having added jobs continuously for a record 86 months. Unemployment has settled in the low-4 percent

range, supporting stronger wage growth, and there are a near-record 6.0 million job openings awaiting qualified workers. Consumer and business confidence continue to hover near decade-high levels, invigorating retail sales growth and corporate

Core Inflation Rate / Wage Growth

U.S. Core Inflation vs. Wage Growth Core Inflation

Wage Growth

8% 6% 4% 2% 0% 01

17*

10-Year Treasury vs. 2-Year Treasury Yield Spread Tightens 10-Year Treasury

2-Year Treasury

50 pbs

200 pbs

280 pbs

Rate

200 pbs

2% 0%

04 05 06 07 08 09 10 11 12 13 14 15 16 17**

* Through 3Q ** Through December 29

Rental Housing Journal Arizona · March 2018

anticipate an additional three rate increases in 2018. The Fed will also likely continue its efforts to reduce its balance sheet by allowing assets acquired during its quantitative easing efforts to Corporate tax reductions Housing market mature. Through this process, likely to boost economy. Although there is considerable slowdown could offset the Fed will make an effort to debate regarding how much of growth. The restructuring of put upward pressure on longterm interest rates. The central the corporate tax savings the tax rules likely weighLift New Tax Law OfferswillProspects ofwill Economic filter through to workers and on the owner-occupied housing bank will vigilantly watch for liquidity-sparked inflation. Economy starts 2018 with formidable The U.S. economy closed the broader economy, several market, tailwind. particularly in states provisions of the newstrong tax law 2017 in a particularly position, continuously for a with having elevatedadded home jobs prices and Prepared and edited by John Chang should spark increased corporate property record 86 months. Unemployment has settled in the suptaxes. Thelow-4 new percent tax law range, First Vice President, National Director investment. Accelerated porting stronger wage growth, andaffects there are a near-record million Marcus job openhome sales in 6.0 several & Millichap Research Services depreciation expensing rules Consumer ings awaitingand qualifi ed workers. business standard confidenceTel: continue ways: Theandincreased (602) 707-9700 john.chang@marshould companies to invigorating to hoverencourage near decade-high levels, retail sales growth and corporate cusmillichap.com © Marcus & Millideduction will modestly restrain 2018 www.MarcusMillichap.com increase investments into plants investment into infrastructure. The first-time new tax rules could reinforce many of these home buyers, while chap and equipment, while reduced trends through the many tax incentives that were limitations oncreated. the deduction tax rates on the repatriation of of state and local property The information contained in this was obtained from sources overseas holdings should spark Corporate tax reductions likely to boostwill economy. there report is considtaxes weigh Although on upper deemed to be reliable. Every effort was an influx of capital coming erable debate regarding howback much echelon of the corporate tax particularly savings will filter through housing, made to obtain accurate and comintoworkers the U.S.. Though much to and the broader economy, several provisions tax law in California and states ofinthe thenew plete information; however, no repof this spark capitalincreased may be used for investment. Northeast. The introduction of a resentation, should corporate Accelerated depreciation and ex- warranty or guarantee, stock buybacks and dividends, lower limittoon mortgage interest into pensing rules should encourage companies increase investments plants express or implied, may be made as to the equipment, increased liquidity shouldtax rates accuracy or reliability of the infordeductibility, now $750,000 and while reduced on the repatriation of overseasthe holdings mation contained herein. No represenspark consumption and instead of into $1 million, also much should spark an influx of support capital coming back the U.S..will Though of this tation, warranty or guarantee, express economic weigh and on higher-priced capital maygrowth. be usedThe for natural stock buybacks dividends, the home increased liquidity or implied may be made as to the acrisk created by the inflowandofsupport sales. economic Since thegrowth. recession, should spark consumption The the naturalcuracy risk creor reliability of the information so much rising housing has contributed ated by thecapital inflow will of sobe much capital will bemarket rising infl ationary pressure.contained herein. This is not intended inflationary pressure. about 3 percent to economic to be a forecast of future events and growth, half of the sector’s Lower personal tax tax rates should boostabout consumption. The actualthis taxis not sav-a guaranty regarding a fuLower personal rates ture event. contribution levels of the early ings that fl ow through to individual tax payers will naturally vary depending on aThis is not intended to proshould boost consumption. vide specific investment or tax advice 2000s. Under new tax law, wide variables, but that the consensus is thatthe most people will see at least The range actualof tax savings and should not be considered as inhousing’s contribution income will that afl modest reduction taxes. This will increase discretionary should ow through to inindividual vestment or tax advice. Sources: Marlikely weaken. translate to increased retail sales. only Research Services; BLS, & Millichap tax payers will naturally vary This will take time, as most workers willcussee CoStar Group, Inc., Federal Reserve, Fed in to each keeppaycheck, a watchful adepending modest change in their tax withholding buteye. in aggregate, it on a wide range of Moody’s Investors Service, NMHC, Real The increased liquidity and should boost consumption, the primary driver of economic growth in the U.S. variables, but the consensus is Capital Analytics, Standard & Poor’s, consumption levels created that most people will see at least U.S. House of Representatives, U.S. the new tax The law restructuring have the Senate, Housing slowdown couldbyoffset growth. of the tax a modestmarket reduction in taxes. U.S. Internal Revenue Service, potential housing to raise inflationary rules weighdiscretionary on the owner-occupied market, particularlyU.S. in Bureau states of Economic Analysis, polThis will willlikely increase The new Federal Reserve with elevated home prices and property taxes. The tax law affects home sales icyuncertainty.com income that should translate to pressure. raiseddeduction its benchmark in several ways: increased standard will modestly rate restrain first-time increased retail The sales. This will • three times last year and and local mostproperty taxhomebuyers, on the deduction of state take time, as while most limitations workers will es will weigh on upper echelon housing, particularly in California and states in the Northeast. The introduction of a lower limit on mortgage interest deductibility, now 11 $750,000 instead of $1 million, will also weigh on higher-priced home sales. Since the recession, the housing market has contributed about 3 percent to economic growth, about half of the sector’s contribution levels of the early 2000s. Under the investment into infrastructure. The new tax rules could reinforce many of these trends through the many tax incentives that were created.

see only a modest change in their tax withholding in each paycheck, but in aggregate, it should boost consumption, the primary driver of economic growth in the U.S.

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Rental Housing Journal Arizona · March 2018