Sponsored blog content provided by Betty Friant, Senior Vice President, Kay Properties & Investments, LLC
The client has invested in real estate since 1987. After experiencing difficulties in renting an industrial property she owned for the past 13 years, it was time to sell. Having sold many properties in the past, the concept of doing a 1031 exchange was all too familiar to her. She questioned whether or not to do it this time. In consulting her financial advisor and CPA, she was informed of the tax consequences in selling this property. In hearing this information, she inquired into the best course of action for her tax situation. The advice was based on a simple question, “Do you want another rental property”? Emotionally, the client was tired of the responsibilities associated in being a landlord, in addition to everything involved in purchasing another rental. Logically, however, it was concluded that the best course of action was to purchase a replacement property and defer the taxes.
The search began for a replacement property, with the industrial unit settlement coming in 60 days. Within a few days, she was tired of looking through 100’s of listings provided by residential realtors and commercial properties, that did not meet the financial criteria. Despite these challenges, the search continued until she reached a point of frustration and considered paying the tax, rather than deal with this long process. Why invest in another property, doing the same things she has already been doing such as rent collections, paying bills, and solving all sorts of problems? She called her commercial broker to discuss the situation, who said the DST’s sound like the perfect solution for her situation.
The client was then introduced by the commercial broker to Kay Properties and Investments, LLC. She was hesitant at first, not knowing how DST’s work. Taking it upon herself to read all of the educational material and asking many questions, the client studied DST’s prior to the settlement for her warehouse.
Client spent six weeks prior to her warehouse settlement, immersed in numerous PPM’s and in study mode with Kay Properties. In the end, the client was grateful to Kay Properties for helping her to avoid a huge tax consequence and educating her through various channels.
The client was able to successfully complete her 1031 exchange into a diversified portfolio of DSTs consisting of Class A apartments, Class B apartments, and also single tenant net lease industrial. The process from the close of the warehouse to the selected DST’s took place within a week! She was delighted to start receiving income from her DST investment because for the two and a half years prior, her relinquished property had been vacant and not producing income. She now enjoys sharing her new acquired knowledge with other investors, who are tired of property management, but still love the passive income real estate offers.
This is an example of the experience of one of our clients and may not be representative of the experience of other clients. Past performance does not guarantee or indicate the likelihood of future results. Diversification does not guarantee profits or protect against losses.
Kay Properties and Investments, LLC is a national Delaware Statutory Trust (DST) investment firm with offices in Los Angeles, San Diego, San Francisco, Seattle, New York City and Washington DC. Kay Properties team members collectively have over 114 years of real estate experience, are licensed in all 50 states, and have participated in over $7 Billion of DST real estate. Our clients have the ability to participate in private, exclusively available, DST properties as well as those presented to the wider DST marketplace; with the exception of those that fail our due-diligence process. To learn more about Kay Properties please visit: kpi1031.com.
This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying special attention to the risk section prior investing. This email contains information that has been obtained from sources believed to be reliable. However, Kay Properties and Investments, LLC, WealthForge Securities, LLC and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment. IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation. This material is not intended as tax or legal advice.
There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) properties and real estate securities including illiquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed. For an investor to qualify for any type of investment, there are both financial requirements and suitability requirements that must match specific objectives, goals and risk tolerances.
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An article which appeared in last Saturday’s Tacoma News Tribune highlighting new landlord-tenant laws included several assertions by tenant advocates claiming that landlords are intentionally attempting to remove protections granted to them under the new law. To set the record straight, rental housing industry experts negotiated all changes to the RLTA in good faith.
Any new law or change to an existing law necessitates an adjustment period to better understand the unintended consequences to both tenants and landlords. This helps both parties learn and adjust to the effects resulting from changes to the law or from the business practices on those in which the law applies.
In late July, the most significant changes to Washington’s Residential Landlord Tenant Act (RLTA) since its inception in 1973 went into effect.
Under the new law, tenants are provided a substantially longer period to pay their rent – 14 days to pay rent or vacate, up from 3 prior to July 28, 2019. Most of the time, property managers and landlords, whether managing a 100-unit building or a single-family home, have offered a 3 to 5 day grace period beyond the rent due date before issuing “Pay or Vacate” notices to tenants. In fact, many lease agreements have a grace period written into them as a specified term of the contract itself.
With the changes to the RLTA now in effect, tenants have until at least the 15th of the month to pay past-due rent before a manager or landlord can begin eviction proceedings to regain control of a rental property. Under the new law, the grace period is baked into the pay-or-vacate period of 14-days so that a grace period is always provided. This point was agreed upon and understood by all parties, including tenant advocates, who negotiated this law.
During the legislative session, lawmakers raised concern over the substantial increase in the notice period and the potential that landlords will immediately issue a fourteen-day notice as opposed to working with the tenant. In fact, we advocated for a solution which would have mandated a 5 day grace period, with a 10 Day Pay or Vacate Notice following thereafter. Other stakeholders in this process would not agree to that proposal even though it would result in less pay or vacate notices being served.
Tenant advocates did not see service of a pay or vacate notice as a bad thing, however. In fact, the lead negotiator for tenant advocates and author of the legislation, Edmund Witter, the managing attorney for the King County Bar Association's Housing Justice Project, felt this was a reasonable outcome, saying “as somebody who represents tenants, who sees a lot of things, I don’t think it’s a bad thing if a landlord is serving that notice and sort of telling the tenant, look you're behind on your rent and you could be evicted potentially, but it has some remedies once we get to that if it gets really far into the red. I don't think it's a bad thing for landlords to sort of push on it.”
While service of a notice to ‘pay or vacate’ may not be an ideal starting point, it does provide advantages to tenants who lack resources to pay rent. First, many nonprofit service providers require a notice to pay or vacate when they consider whether to provide financial assistance to renters experiencing financial hardship. Second, tenants who are unable to pay rent benefit from receiving notice as soon as possible so they can work with community resources to make their payment.
The industry is working to address housing affordability in Washington state to provide relief to renters, all the while creating opportunities for landlords to improve their rental properties while preserving affordability and creating new housing opportunities of all types across Washington state.
We crafted reforms to the “Pay or Vacate” process that worked for tenants and protected the business interests of landlords, including a State fund which assists tenants in paying rent to remain in housing. We advocated and pursued extending the notice period to terminate a tenancy and passed a law that requires 120 days’ notice when the owner of a rental property intends to demolish, substantially renovate, or change the use of a rental property. We pursued legislation that required information of tenant rights be provided when notice to pay or vacate is delivered. It’s unfortunate that tenant advocates are painting our good faith efforts in a negative light.
We must take a holistic approach to Washington’s housing affordability issues to create meaningful solutions that make real progress in addressing the problem. This includes a comprehensive approach to maintain the existing affordable housing we have and creating more affordable housing for generations to come.
Dear Resource Desk: Can I include a note in my vacancy ad that I am not certified for renting to Section 8 applicants?
No, RHAWA would not recommend putting anything in your ad about Section 8 which can be perceived as steering voucher holders away. Remember, Section 8 is now protected statewide as a source of income.
While you are not required to accept someone with a Section 8 voucher - they must still pass your screening criteria - you cannot turn them away simply because they have the voucher.
If a Section 8 applicant comes to you and passes your screening, the housing authority will perform a health/safety inspection to determine if your property is suitable for the applicant. State law created in 2018 includes a mitigation fund which will pay up to $1,000 in repairs for your unit to be repaired to allow the tenancy to continue. If the repair required by Section 8 is greater than $1,500 you can decline the applicant. Anything under $1,500 and the state will pay $1,000 toward the cost after you cover the first $500.
Sean Martin | Executive Director
On August 1, a King County judge ruled that an initiative which seeks to create a “just cause” ordinance in the city of Federal Way could be placed on the November ballot. The ruling came a few days after RHAWA had filed a motion seeking a temporary restraining order against the measure.
The initiative, labeled as “Stable Homes,” would create just cause protections for renters which would require that landlords meet a “good standard” to terminate a tenancy in the city. Included within the ordinance are provisions which would also create protected classes for renters based on their job occupancy, and which would allow renters to move in relatives without permission of the landlord once a tenancy has been established.
Washington CAN, a community organization most commonly affiliated with Seattle Councilmember Kshama Sawant, had the initiative drafted and supported the effort to secure just enough voter signatures to squeak on to the ballot. This action came after Federal Way City Council chose not to adopt an ordinance of its own.
RHAWA chose to pursue legal relief due to the filing of the initiative failing to comply with the city’s own procedure. Ultimately, the courts sided with the city’s argument that its own initiative laws were “anachronistic” and that state law could be substituted in favor of the city’s own laws.
Just Cause termination laws are problematic for several reasons, the most obvious being that they’re predicated upon landlords being in the business of terminating tenancies which are causing no issues at the property. A lost tenancy poses significant financial risk to a landlord, and the decision to end a tenancy is not taken lightly.
Within the context of the initiative, extending protected class status provisions to individuals based upon their chosen type of employment – first responders, health care providers, and teachers are all called out specifically – is a clear attempt to confuse voters and garner sympathetic votes. When was the last time someone had their tenancy terminated because they were a teacher or a first responder?
Most importantly, however, is that a primary role of landlords is to provide safe and healthy housing for their renters. Just Cause protections put the rights of criminal offenders ahead of the rights of their victims and neighbors.
This issue in Federal Way should be considered a concern for all landlords in the state as “just cause” is likely to receive consideration in other jurisdictions in South King County as we move towards the 2020 state legislative session. WACAN is likely to repeat this process in other cities as a means of forcing the state legislature to act on the issue. In fact, among the arguments made at court, WACAN submitted a declaration stating that if they’re successful in Federal Way they intend to raise "at least $500,000" for similar initiatives next year.
RHAWA membership support on this issue is critical as we push forward in defending our policy solutions which target creating more housing for all income levels.