All Forum Posts by: Nik Moushon

If it does pass, or some version of limiting the 1031 amount, it will cause two big things IMO: 

1 - Less selling of MF and commercial property. 

2 - More new construction through Opportunity Zone Funds. Even though investors only have the option of keeping their capital gains in for 10 years now...its a way better option for them than paying 40% capital gains tax. Especially since ANY TYPE of capital gains tax can go into a OZF (vs only like-kind transactions of a 1031) and come out with zero taxes after 10 years. Though sales will stall out a bit, it would bring a lot of new real estate on the market at the same time. Which is a good thing in the long run. 

I'm torn on the proposal. The developer side in me say this is a great catalyst to push people into OZF for developing. The other side of me says this would be horrible and stall out and crash the commercial market. Plus this is a huge problem for those wanting to cash out and retire. I can ride out this wave....but most retirees dont want to wait 10 more years to see their money or be limited in any cash flow because they cant get rid of properties without taking a huge hit. There are also changes to estate & death taxes as well....those will more than likely happen IMO. 

@Krystin Krebs

If you are serious about this, the first thing you need to do is go find an architect that know your local zoning code and the building codes for tiny homes or the use of containers. This will cost money up front but if you are not willing to pay a small amount to ensure that you know what you can or can not do then you need to just back out now. Development of any kind costs lots of cash up front. There is no way around it. 

Since I've been in architecture for over 10 years now I'll throw a couple reality checks at you:

• In the vast majority of zoning, tiny home are not aloud. By vast, I mean like 99% of the US.
• Containers are not ideal for anything, imo. By the time you build interior walls so you can add insulation to them, put wood down for a built-up floor, you have basically built a traditional wood framed building. All you did is paid a premium for metal cladding and a big *** crane. 
• Odds are, if you are doing any kind of development, you will need some kind of utilities, if not all of them. This varies on the jurisdiction but just do not count on the fact that you wont have to pay for any of those to be brought in. If you are doing commercial buildings (restaurants and shops are commercial) odds are they will require it.
• The zoning is going to be your biggest problem. If its a forest, odds are, commercial buildings are not going to be a loud or at least are very limited (think agriculture buildings). 
• You need to put together a very detailed pro-forma of all the expenses that are required. Both those that are going to be covered in the construction loan and those that you need to pay for with cash.
• You will have trouble getting a construction loan on this. You're new to developing, you dont own the land free and clear, you dont have any architectural drawings (yet) and it sounds like you dont have a lot of cash for the required collateral. You will need at least 25% of the construction cost in either cash or collateral. 

Not trying to burst your bubble here but development is a completely different beast than the rest of REI. There is a reason 90% of REI dont touch ground up developments. Though the rewards are higher, its very high risk and very capital intensive. You can very easily lose everything and you could do everything right. Just be very careful before you get yourself in too deep and be prepared that you could spend a lot of money before you are able to find out that you cant do anything you wanted to do. Thats just the development game. Best of luck.

@Joseph Banko

Go read the requirements for tenants that they need to meet to be able to qualify for getting evicted. If you go look at the law, there are actually a list of requirements for the tenant. Its not just this blanket, "The tenant cant get evicted". You can still take them to court and get the evicted if you can prove they have the means to pay and are not effect by COVID. Now, in this current state, the burden of proof is huge on you (the LL). So most don't both because its extreme right now and judges are leaning heavily in the favor of tenants. So keep all your correspondents with the tenant and keep everything in writing as much as possible. There are also requirements you need to meet as well. So make sure you are following everything required of you or the judge will never even listen to your case. For example the tenant is required to email/talk with you about their loss of income due to COVID. You are suppose to provide them with a reasonable re-payment plan. There's a lot here for both sides. So go talk with a lawyer. Bottom line is though, the tenant just cant stop paying because they dont feel like paying. 

5+ units is GUARUNTEED to need sprinklers if you do a major rehab. Thats just building code for you. Heck, building code is going the way of eventually requiring single family homes to have sprinklers. Its best now that everyone starts getting use to sprinkler systems as part of life in buildings now. 

The only unknown is when you are doing a rehab, at what point or how much rehab, triggers the need to add sprinklers. This is set by each city/state. And if you are going to be doing that kind of rehab odds are the city will require an architect as well for your project. Even though you are a residential building, you step into the realm of commercial when you get to 5+ units. 

In this climate you really need to go to a lawyer on this one. The law is changing weekly here in WA. Plus with all the law suites in higher courts pending too. 

With that said, I'm pretty sure the current moratorium is only preventing evictions due to unpaid rent. My understanding was that you could still evict for other things. Not sure if there is a set list of what that is though. 

I would think you could go after him for the extra rent but not sure if its worth it. There is maybe $3k there....doubt your lawyer fees will be less than that. You could try small claims court on your own but do you have the time for that? Thats up for you to decide. I would definitely keep the full deposit. 

Speaking of the deposit, another issue is that if you keep the current tenants what are you going to do about their deposit? Make them pay again? Because I'm sure your original tenant has their deposit and isnt going to be giving it back.

@Wendy Boone

No matter what anyone else says don't waste your time with looking for stock floor plans. You can't use a drafter for apartments. You are required to use an architect for apartments. And no competent architect is going to spend half a second wasting time with a potential client that wants to use stock plans for apartments. In this building market it is going to be difficult for you to find a competent architect to begin with, don't make it more difficult on yourself trying to find an architect by presenting them with or the idea of using stock plans for apartments. 

And bottom line is....it wont be cheaper for you. In fact, 9 out of 10 times it will cost you more using stock plans. And 100% of the time it is more of pain for the architect to use stock plans than to come up with a new floor plan from scratch. Now if you want to save yourself and the architect time and money propose the idea that you are willing to re-use one of their own plans they have already designed for another client. 99% of the time the architect own the copyrights to the designs and drawings and has the ability to reuse designs from client to client. 

I know I've made it clear...but just to be extra clear....dont use stock plans for apartments. ever.  And really not even single family house should use stock plans.  

 I'm pretty sure that was the original one proposed by Inslee (since its a 2019 bill to go into effect Jan 1 2020). Those numbers are absurdly stupid, and even most Dems realized that. The newest bill got a heavy handed dose of edits, which is why it got passed. This kind of cap gain tax has been proposed for years here. Now that the societal norm is "tax the 'rich' as much as possible", this kind of bill got through since it focuses on the so called "top 2%" (i think this number is more than likely going to be the top 25% but whatever).  What people dont realize is this is just a foot in the door. The "top 2%" will turn into top 5, then top 10, then top 50. Government never keeps taxes the same and certainly never reduces them. 

Here's a short article on some of the detail of the bill. it wa written the other day. https://www.stateandlocaltax.c...

I couldn't find a list of exactly everything. I need to look it for it...

@Lara Nicole

WA state is not very LL friendly...but it got voted, yet again, the most popular state to live in (not to be confused with the most popular state to move too). There will ALWAYS be a demand for rentals here, always. Most LL that want an easy, laid back business, will move elsewhere (especially small time LL). Nothing wrong with that. All that does is leave a vacuum to be filled by us small timers that stay behind or the large companies that move in. If you don't adapt your business tactics to change...ya you will get crushed. but if you do you will find success and a higher return IMO. 

As to the proposed laws you mentioned they all seem to be directed in a way to prevent in mass evictions when the moratoriums lift, which I can agree with the idea behind it but I think its unconstitutional at its base. This is what happens when the governments make a knee jerk reaction and doesnt think about the end results. This will be an issue across the entire country, not just WA. It will also effect home owners too. The "pause" on mortgage payments and rents are similar. Someone owes someone else money and that person is entitled to what is due. No government can prevent that. What I for see happening is another play into socialized government similar to the monthly payments that are in the new COVID bill that just passed, except instead of for child care its for rent. The government cant force every LL to become lenders and eat the lost rent and spread the return over a 30 year loan. 

So if you want to invest in WA go ahead and run your numbers and make sure those work first. Then consider the state laws but dont just take them at face value. Look into ways that the current LL are working with them and plan to address the proposed laws. There will be a point were the government makes laws so crazy that it basically forces government run rental housing everywhere...but no state (even crazy a$$ OR) is close to that. 

@Steve Vaughan The capital gains tax law is profit over $250,000/yr, not $25,000/yr. I still think the law is unconstitutional and will see many law suites but that $250k threshold is a lot better and easier for us small timers. Though in REI it doesnt take much to get over that threshold. I just foresee a ton of 1031s and more people sitting on long term holds and just doing cash-refi to get a lump of cash. Be that just to spend on themselves or buy more property....assuming the law suites fail that is.

 Thanks Steve. 

My CPA is Frank Kuntz. Not sure if he is taking more clients right now or not. But you can give his office a call. 

Hopefully more landlords can hold on longer. A judge just ruled the CDC moratorium unconstitutional. Of course the DOJ immediately filed an appeal. But at least it is finally going to the courts. We can get a firm answer on this, hopefully, soon. 

What I do expect to see though is that a lot of lanlords will pull together and sue their respective states if they dont immplement some kind of state payback program. There is absolutely zero chance anyone that hasnt paid in the last year would be able to pay it back. Landlords arent lenders and renters arent lendees. Even with what Jay said, that OR is looking to give landlords 80% of back rent is not enough. It needs to be 100% IMO. Where are renters who are suppose to be "struggling" going to get a lump some of 20% of the past 1-2 years of rent. You really think they have 3-5 months worth of rent in cash?