What Does the Passing of the Tenant Protection Act Mean for Landlords?

What does AB-1482 (the Tenant Protection Act) mean for landlords in California? Let’s discuss.

The Tenant Protection Act (AB-1482) was just signed into California law, and this has many landlords wondering about the implications of this move. There are a couple of key changes to keep in mind.

The first is the new 5% annual rent increase cap. This cap does account for local inflation, which is about 3.8% in the Los Angeles area, so the “true” cap is actually closer to 8.8%. So long as your increases don’t exceed this limit (which is retroactively effective as of March 2019), you shouldn’t have any issues.

Landlords can still evict problematic tenants, but they will now need to present evidence to the court before doing so.

The second important change to keep in mind is the new “just-cause” eviction standards. This doesn’t mean that you will no longer be able to evict problematic tenants—just that you will need to present evidence to the court before doing so.

Another change to remember is that landlords now need to pay one month’s worth of a tenant’s rent to help them vacate the property whenever you’re doing remodeling projects.

Finally, landlords should realize that, under AB-1482, any Los Angeles properties that are more than 15 years old will be subject to rent control.

These points combined basically sum up what you need to know about the Tenant Protection Act, but if you have any other questions or would like more information, please feel free to give me a call or send me an email. I look forward to hearing from you soon.

Where Will You Find Opportunity Zones in Our Area?

It seems opportunity zones are a real hit, so today I'll share some more info on this.

Welcome back, everyone! 

Because I received some excellent feedback from my recent message on opportunity zones, I’ve decided to explain how they work a little more and where they’re found in our local communities. 

Just to recap, opportunity zones are economically depressed areas that the government incentivizes investment in. Unlike a 1031 tax exchange where you have a mere 45 days to identify a property and 180 days to close on that desired property, you have a 31-month safe harbor to put your money into an opportunity fund. Additionally, you’re not locked into that fund—you’ll have the freedom to move assets from one fund to another for up to a year.  
Hopefully that answers one of the questions I was asked regarding the risk you’d be subjected to by investing in one of these zones. 

As far as Los Angeles is concerned, there are 274 opportunity zones within the area—all of Lincoln Heights and the area surrounding LA County and the USC Hospital are a few examples. Beyond that, some other zones lie in pockets of Santa Clarita, South LA, and Orange County. I could go on and on. 

Also, there are some marvelous neighborhoods in and around Riverside, and you might be surprised to learn that many of them are designated as opportunity zones. Keep that in mind if your son or daughter is an aspiring UC Riverside student and you’re considering a move. 

Today I just wanted to shed light on some local opportunity zones, but these are just a few of the thousands dispersed throughout the country. To see a full map, you can click here. And if you’re curious whether your home falls within an opportunity zone, all you have to do is click here and enter your zip code. 

If you have any additional questions or feedback for me, you’re welcome to reach out anytime. Until next time, stay safe and stay happy!

What is a Qualified Opportunity Zone?

Do you want to boost your cash flow while reducing your tax liability? Today’s message will teach you how you can.

Today I’d like to share how you can improve your cash flow by 20% without any additional money out of pocket by investing in a Qualified Opportunity Zone. 

Through the Qualified Opportunity Zone program, you can invest in multiple assets while reducing your tax liability on all capital gains, including gains from stock and business. With this program, your tax liability is reduced depending on the amount of time you retain an asset. 

If you hold onto an asset for five years, you get a 10% reduction. If you hold onto an asset for seven years, you get a 15% reduction. And, finally, if you leave your money in an asset for 10 years, any appreciation above the acquisition and improvement costs will be tax-free. 

Investing in a Qualified Opportunity Zone, as you can see, can be a great way to boost your cash flow while reducing your tax liability. 

If you have any other questions or would like more information, feel free to give me a call or send me an email, I look forward to hearing from you soon.

The Improvement Tax Exchange in a Nutshell

Can I do an improvement tax exchange with a property I’m building? What must the home’s value be? I’ll cover that and more in today’s overview of this type of tax exchange.  

Some of you have expressed interest in or have had questions about improvement exchanges in
the way of taxes. In light of this fact, today I’ll help you gain a richer understanding of how this
process works.

One such question I’ve received is, “Can I do an exchange while I build a new home?” As
a matter of fact, that’s precisely what these types of exchanges are for. For example, say you
sold a home for $600,000, and you subsequently bought a new home for $450,000. Then, during
the 45-day identification period, you decide that, because you have additional land you can build
on, you’d like to do so. Further, let’s say the additional unit will cost another $100,000, bringing your
purchase total to $550,000.

Unfortunately, you’d still be short of the requirement for an improvement tax exchange. If you’re
selling a home and would like to make this exchange, the replacement property that you
purchase must be of equal or greater value to the one you’re selling. One thing of
note, though: Having two units will amount to $900,000 as long as you close exchange escrow
(not to be confused with traditional escrow) in 180 days.  

As you make your way through the process, the exchange accommodation titleholder will hold
the title while you’re conducting construction improvement on the property and, after that 180-day
window is up, it will close. There doesn’t need to be a certificate of occupancy on the property
nor does it have to be completed; the only stipulation is that its value has risen.

The magic number for the home’s value is $600,000 or more—if you can meet or exceed
this, you can bank on your ability to carry out an improvement tax exchange. Although there’s
a little more intricacy and finesse involved than with a 1031 exchange, this is a totally feasible option
for a range of buyer types, such as someone looking to convert a commercial office building into a
medical office building.

If the prospect of making an improvement tax exchange on property intrigues you or you have further questions related to this, I welcome you to give me a call at 626-643-7090 or email me at ReoAgent@ShawnLuong.com. I’d be happy to sit down and speak with you!

Get Better Cash Flow With a 1031 Exchange

If you want to increase your monthly cash flow, it’s time to take advantage

of the 1031 Tax Exchange.

Did you know you can get up to 20% more monthly cash flow without spending a penny?
It’s true, and it’s as simple as implementing the 1031 Tax Exchange.

You’ve probably heard of the 1031 Tax Exchange in the past, but now’s the time to truly take to
heart what this strategy can do for you.

Through the 1031 Delayed Tax Exchange, you have 45 days after closing escrow to secure a
replacement property. You’ll also need to close escrow on the replacement property within 180 days
after closing on your home sale.

1031 Tax Exchanges allow you to avoid Capital Gains Tax upon the sale of your property assuming
you meet certain requirements. If you don’t pursue this strategy, there are three tax-related
concerns you’ll need to consider:

1. The State Tax. Depending on how much you make from your home sale, the amount you owe in
State property taxes may increase if you don’t use a 1031 Tax Exchange. To learn more about
what your taxes would look like without a 1031 Exchange, check out this calculator.

2. The Capital Gains Tax. When your sale is subjected to Capital Gains Tax, this means you could
lose a significant percentage of what you earn from your sale.
To learn more, check out this Capital Gains calculator.

3. The depreciation recapture rate. This is the federal tax rate that will be levied on the year that you file the tax return on a property sale without a 1031 exchange. The depreciation recapture amount is based on the cumulative depreciation that you have taken each year that you have owned the property and the rate is at 25%  on the total depreciation that you have expended on your tax returns.  For residential income property including apartment buildings over 5 units, the depreciation is taken over 27.5 years on the improvement value, not on the land.  For commercial properties such as retail, office, and industrial buildings, the depreciation is taken over 39 years. Check out this step-by-step guide to learn how to calculate a recapture rate for a given property.

If you have any other questions or would like more information, feel free to give me a call or send

me an email. I look forward to hearing from you soon.

What’s the Best Way to Determine How Much Your Home Is Worth?

I’m offering you a free home evaluation that is much more accurate than a Zestimate.

Thank you all for your great feedback on my last blog post regarding the state of the market, where
I compared what we saw in 2018 to 2017.

As we have all learned, the market has pretty much reached its peak. Many of you have
done well in terms of your net worth by accumulating equity on your properties, though a few of
you have called me to say that while your equity looks nice on paper, it hasn’t given you any sort
of return yet.

Well, with that in mind, I have something to offer you:

I’m offering you a free home evaluation that’s accurate within 1.5% to 2% of the sales price
of the home. You might ask why you should go with my home evaluation instead of, say, the one
provided by the popular website Zillow’s valuation tool, the Zestimate.

The truth is that Zillow’s own site says that only 91.6% of the homes listed in the Long Beach area
sell within 20% of the sales price—that’s not a very high accuracy. Zillow may be a good tool
for a ballpark estimate, but you can’t rely on their Zestimates for an accurate estimate of your
home’s actual value. Remember that Zillow’s own CEO sold his home for 40% less than what
his Zestimate called for.

If you would like to know your home’s exact value, please reach out to me. I’m more than happy
to provide you with a complete report on your home so that you can review your current financial
information and prepare for the next step toward your real estate goals.

A Past Market Comparison & Update for 2019

We saw some considerable changes from the final six months of 2018’s real estate market compared
to that same time the year before. What were they?

First, I’m happy to report that average home appreciation rose from $623,000 in 2017 to
$658,000 last year. However, the total number of homes sold dropped off by 11.1%—total sales
reached 10,383 in 2017 and 9,229 the following year.

In 2017, home appreciation rose little by little between July and December without ever experiencing
a true surge. From November to December of that year, appreciation topped out at 0.5%.

Contrastingly, from July to December of 2018, prices seesawed up and down, and home
appreciation dropped by 3.3% to close out the year.  

So what’s to come for our market in 2019?   

Well, I expect appreciation to continue to be a little bumpy, with home prices rising to
somewhere between 4.5% and 5%. And I can say with certainty that no market crash is in sight.
Not only that, the market continues to flourish—unemployment is currently at an all-time low.

I’d love to hear your feedback, so don’t hesitate to text or call me at 626-643-7090 or email me at ReoAgent@ShawnLuong.com. I look forward to speaking with you!

3 Advantages to Having a Checkbook Control Self-Directed IRA, LLC

Today I’ll be shedding more light on checkbook self-directed IRAs, LLC after receiving some questions from a few of you.

Unlike more traditional self-directed IRAs, where your funds are held by a custodian who acts as
an authority on each transaction, the owner of a checkbook self-directed IRA, LLC possesses full
control, which is commonly referred to as “checkbook control.”

There are three benefits that set checkbook self-directed IRAs, LCC apart:

1. You’ll be able to keep more from a fix and flip. If you’re looking to use funds from your IRA
to fix and flip a piece of real estate, you’ll preserve 100% of your gains because you won’t have
that 40% taken right off the top due to the income tax you’d ordinarily incur from an ordinary fix and
flip.  

2. You can skip the excessively long process of a 1030 exchange. If you’re a rental property
owner and you want to upgrade to a new property, you would typically be stuck going through a
1030 exchange, which can be a slow-moving process. But with a checkbook self-directed IRA, LLC,
you’ll eliminate those long waiting periods because you’ll have full autonomy to write checks for
the necessary services and expedite the buying process.

3. You’ll have fewer fees to worry about. Rather than having to pay the litany of fees, such
as asset-based fees, that come with normal self-directed IRAs, you’ll simply pay an annualized
custodian fee that tends to be much more reasonable.  

If you’d like more information or would like to be pointed in the direction of a custodian to hold your
IRA, I’d love the opportunity to help you. Give me a call or email me today!

How to Prepare For Proposition 10 Rent-Control Changes

In our latest message, I’ll be discussing the potential changes of Proposition 10 and why you should consider increasing rent.

With votes being cast next month, Proposition 10 could potentially change the way rent control works
in Southern California. As the balloting comes closer, I’m being asked more and more about what
should be done in preparation for these changes.

The simplest solution? Raise rent periodically to reflect economic and market trends.

Employees receive wage increases for cost of living and inflation, and utility companies
increase price based on growing infrastructure costs. It’s no different in real estate—costs rise
over time.

Let me provide some examples:

The median price for a West Covina home in 2014 was $435,000 with an average price per square
foot of $278. In September 2018, the median price had risen to $568,000 with an average price per
square foot of $361.

To get a return of 5%, account for 6.5% to cover your costs of tax, insurance, and maintenance. In
2014, rent was around $1.50 per square foot per month, and for 2018 it’s up to $1.95 per square foot
per month.

In a recent survey, the median rent for a 3-bedroom house is $2,325 with a square footage of 1,400
square feet (about $1.65 per square foot per month). You can see the price increase from $1.50 in
2014 to $1.65 now.

If you’re a new buyer and are wishing you were at the $1.95 point, don’t worry! Over the past 35
years, home value has seen a roughly 6% appreciation. For the average owner who puts down 20%
on a new home, that appreciation of 6% amplified over 5 years is a substantial 30% return. On top of
this, a $60 monthly rental increase becomes $720 annually, adding even more value to your
investment.

If you’re looking for guidance in raising your rental prices, have questions, or need information,
contact me by email or phone and I’ll be more than happy to help. I look forward to hearing from you.

What Is Senate Bill No. 833 & How Will It Help CA Residents?

Recently, California passed Senate Bill No. 833, which will take effect on January 1st. I’ll go over how Senate Bill No. 833 will protect your estate from Medicare fees today.

Many of you may not know this, but if you or a loved one file a claim with Medi-Cal, upon your passing, the California Department of Health can file a claim against your estate to reclaim all of the Medi-Cal fees. 

Many people use Medi-Cal to pay for nursing homes, hospitalization, long-term care, or assisted living. The good news for California residents is that Senate Bill No. 833 will prevent Medi-Cal from filing a claim against your loved one’s estate after they pass away. 

How does this work? Starting on January 1st, 2017, if your loved one has a living trust, Medi-Cal cannot go after your estate. Make sure that you and your family have set up a living trust. If they already have one, make sure that it is set up properly so that you won’t have to worry about Medi-Cal coming after the estate. 

A lot of you have asked me about the best way to hold title. I am not an attorney, but I can give you my advice as a real estate practitioner. If you have a residential property and a conventional loan from a lender or bank, the best way to hold title is a living trust. If you have a commercial property with an LLC, the LLC can have a living trust as well. Doing so will help your family avoid a lot of problems in the future. 

A living trust is the best way for you to hold title.

I also recommend that you set up a durable power of attorney. That way, you can appoint someone to handle your business if you are sick or otherwise unable to do so. You should also set up an alternative health care directive determining who can make a decision on whether to operate or not.

So, make sure you set up a living trust. A lot of people worry about long-term care, but now you can have Medi-Cal pay for it without worrying about your loved one’s heirs selling the estate to pay for your Medi-Cal fees. Regardless of who the president is, Senate Bill No. 833 is great news for California residents. 

If you have any other questions about Senate Bill No. 833 or about setting up a living trust, give me a call or send me an email. I would be happy to help you!