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Private Lenders at the Crossroads of Buy-and-Hold Commercial Real Estate

A Fresh Era is Emerging in Commercial Buy and Hold Lending By Ren Hayhurst In a world where unpredictability has been the norm, 2023 seems to be casting a steady light on the buy-and-hold commercial real estate scene. Amidst all the ups and downs caused by fears of inflation, recession, and increasing interest rates, it looks like opportunities are cropping up for smart CRE investors who see the value in riding out the storm with buy-and-hold strategies. With commercial property pricing finding its footing and interest rates showing signs of slowing down, the idea of buy-and-hold is shining brighter for investors. Proof of this shift in sentiment comes from a recent Investor Sentiment Survey, a tag-team effort by RCN Capital and CJ Patrick Company. This survey asked real estate investors from all around about their go-to strategy, and guess what? A solid 52.96% shouted out that they are bullish on “Buy-and-Hold for Rentals.” But it is not just about tradition — lending is getting a fresh makeover. The spotlight is on private lenders cozying up to direct lending, making waves in buy-and-hold with an exciting twist. BlackRock’s research reveals direct lending’s strength against other asset classes. Amidst these shifts, delving into industry analyst data reveals intriguing insights. GoDocs, for example, has closely monitored trends within its customer base. Their findings highlight a notable increase in buy-and-hold loans among their private lending customers. This trend resonates with the broader market, where private lenders are actively exploring fresh opportunities within the buy-and-hold sector. GoDocs has noted a significant increase in the volume of loans being made by private lenders to finance acquisition of BTR and buy-and-hold properties or to finance the rehabilitation of such properties for long-term investment. This market upswing signals growing appetite for resilient long-term investments that weather fluctuations. Investors value consistent income and asset appreciation, making buy-and-hold a robust portfolio avenue. This renewed focus, along with insights from analytical leaders like GoDocs, paints a vibrant picture of a market poised to offer stability and value amid a dynamic economic landscape. Banks and credit unions will delay re-entry as Congress discusses potential regulatory restrictions, chilling lending by regulated entities. As private lenders consider expanding into the buy-and-hold market, there are key automation focus areas:  »         Streamlined Loan Origination and Underwriting  »         Improved Data Analysis  »         Streamlined Portfolio Management  »         Auto Communication and Reporting  »         Ensured Compliance and Regulations  »         Seamless Property Management Integration  »         Automated Risk Assessment  »         Loan Doc Automation A New Buy and Hold Market Amidst market fluctuations, a reinvigorated buy-and-hold commercial real estate arena emerges, fueled by rising rent rates and robust housing demand. Investors are gravitating towards the stability and prolonged income potential of buy-and-hold strategies, encompassing diverse sectors like Build to Rent (BTR) and vacation rentals. Private lenders, adopting direct lending models, stand poised to shape this evolving landscape, as leaders like GoDocs reveal a surge in buy-and-hold loans. This trend underscores the value of long-term investments in navigating market uncertainties and cultivating stability. With industry changes and real-world data as our guide, a fresh era is emerging in commercial buy-and-hold lending. A game-changing approach is taking center stage, reshaping how lenders navigate today’s real estate world. GoDocs, drawing insights from its extensive customer interactions and industry dialogues with leading lenders, presents an innovative, comprehensive approach to the buy-and-hold market and practice: Reimagining Financial Evaluations This innovative approach includes employing Loan-to-Value (LTV) and/or Debt Service Coverage Ratio (DSCR) tests as closing and ongoing covenants. The data-driven analysis clarifies project financial viability. Precise and recurrent financial reporting, with timely property updates, ensures a holistic project understanding. Emphasizing borrower and guarantor financial covenants, including periodic evaluations of the tangible net worth and liquidity of key loan parties, boosts accountability and stability. Dynamic Lender Engagement As market dynamics fluctuate, the power of scheduled lender engagements is a critical component. This empowers lenders with the flexibility to recalibrate loans and reevaluate collateral in response to evolving circumstances. Particularly relevant when borrower or guarantor financial health falls below covenant tests, or property performance falters in relation to DSCR and/or LTV requirements, this dynamic approach ensures timely adjustments, positioning projects for resilience. Proactive “Course Correction” Mechanism To anticipate and preempt challenges, a pivotal shift lies in embedding rigorous financial covenant and reporting tests within both new loan origination and ongoing interactions. Enhanced by an expanded spectrum of lender remedies, this framework empowers lenders to collaboratively re-set their relationships with borrowers proactively, ensuring that potential difficulties are addressed before they escalate into long-term struggles. This proactive stance not only fosters resilience but also optimizes the potential for sustained prosperity. Paving the Path Ahead for Buy and Hold As lenders step into the challenges and opportunities presented midway through 2023, the trends provide not just insights, but also a roadmap to navigate the ever-evolving landscape of commercial real estate financing. Buy-and-hold is not merely a strategy; it is a trend gaining momentum, supported by data-driven observations and a broader shift in investor needs and demands. Whether you are an experienced investor seeking stability or a new-comer looking to establish your presence, these insightful observations provide a gateway for savvy lenders to seize the opportunities shaping the buy-and-hold market to better meet their needs and the needs of their borrowers. In this landscape of possibilities, private lenders cannot afford to linger on the sidelines. The invitation is clear, and the reasons are compelling: a robust market, a proven strategy, and an open road to growth. The observations here are about shaping and influencing the trajectory of commercial real estate. By embracing the buy-and-hold expansion today, the path is forged toward a future that is both transformative and enduring. The moment is now, and it calls for action, innovation, and a strategic vision that defines the future of the buy-and-hold market. Please visit https://godocs.com/

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Leveraging Pre-Foreclosure Properties

Create an Investment Portfolio That Stands the Test of Time By William Bonnell Real estate investment has long been regarded as a solid way to build wealth, and within the realm of real estate, leveraging pre-foreclosure properties can offer savvy investors a unique opportunity to establish a lucrative buy and hold portfolio. This strategy involves acquiring properties that are on the brink of foreclosure, often at a deeply discounted price, or perhaps with favorable terms, such as creative financing, which can leave your personal credit available for other opportunities, and then holding onto them as long-term investments. In this article, we will delve into the concept of pre-foreclosure investing, its benefits, potential risks, and how it can contribute to the growth of a robust buy-and-hold portfolio. Understanding Pre-Foreclosure Properties Pre-foreclosure refers to the period when a property owner has fallen behind on mortgage payments and is at risk of foreclosure by the lender. During this phase, the property is not yet repossessed by the bank, and the homeowner still technically owns it. Investors can approach distressed homeowners with offers to purchase their properties, thereby helping the homeowner avoid foreclosure while securing a potential deal for themselves. Most homeowners who fall behind on their mortgages eventually have to sell, as most other options available to homeowners who are financially struggling have very low success rates, especially once they are seriously in default. Benefits of Pre-Foreclosure Investing  »         Discounted Prices // One of the most significant advantages of investing in pre-foreclosure properties is the potential for acquiring real estate at a fraction of its market value. Distressed homeowners are often motivated to sell quickly to avoid foreclosure, which can lead to favorable negotiations for investors.  »         Equity Opportunity // Many pre-foreclosure properties have built-in equity, which can be leveraged to secure financing or fund improvements.  »         Flexible Terms // Investors can negotiate directly with homeowners, allowing for creative financing options, such as seller financing or lease-to-own arrangements that may not be available in traditional property purchases. Utilizing some of these methods can allow investors to acquire more properties than they may otherwise qualify for with traditional financing methods.  »         Less Competition // Since pre-foreclosure investing requires proactive research and outreach, there’s often less competition compared to other real estate investment methods, providing investors with a chance to find hidden gems.  »         Community Impact // By helping distressed homeowners avoid foreclosure, investors contribute positively to the community while also benefiting financially. Steps to Leverage Pre-Foreclosure Properties for Buy and Hold Investing  »         Research // Identify properties in pre-foreclosure through public records, online databases, or working with a real estate agent specializing in distressed properties.  »         Assessment // Evaluate the potential value of the property, its condition, and the amount of equity available. This assessment will help you determine if the property aligns with your long-term investment goals.  »         Contact Homeowners // Reach out to homeowners in pre-foreclosure to express your interest in purchasing their property. Approach these conversations with empathy, understanding the homeowner’s situation and motivations.  »         Negotiation // Once you establish contact, negotiate a deal that benefits both you and the homeowner. This might involve purchasing the property at a discounted price or structuring a creative financing arrangement.  »         Due Diligence // Conduct thorough due diligence, including property inspections, title searches, and legal consultations, to ensure there are no hidden issues with the property that could affect your investment.  »         Financing // Secure financing for the purchase. Depending on the property’s condition, you might explore conventional loans, private lenders, or even usethe property’s equity to fund the acquisition.  »         Long-Term Vision // Incorporate the acquired property into your buy-and-hold portfolio strategy. Assess the potential rental income, property management needs, and appreciation prospects to determine its role in your portfolio. Mitigating Risks and Challenges While pre-foreclosure investing offers many benefits, it is crucial to be aware of potential risks and challenges:  »         Legal Complexities // Pre-foreclosure laws and regulations vary by jurisdiction. It is essential to understand the legal process in your area to navigate the transaction smoothly.  »         Emotional Dynamics // Dealing with distressed homeowners requires empathy and sensitivity. Some homeowners may have emotional attachments to their properties, making negotiations challenging.  »         Property Condition // Properties in pre-foreclosure may require significant repairs or renovations. Accurately assessing the cost of these improvements is essential for ensuring a profitable investment.  »         Market Fluctuations // Real estate markets can be unpredictable. While pre-foreclosure properties have potential for high returns, market downturns can affect property values and rental demand. Bigger discounts not only boost profits, but they can also help to minimize risk.  »         Extended Timelines // Pre-foreclosure deals can take longer to close due to negotiations, legal processes, and homeowner circumstances. Patience is very often rewarded with financial blessings. Building a Buy and Hold Portfolio with Pre-Foreclosure Properties Integrating pre-foreclosure properties into a buy and hold portfolio can yield substantial benefits over the long term. As you continue to acquire and manage these properties, your portfolio’s value can appreciate, and the rental income can provide a consistent cash flow stream. The equity gained from each property can be leveraged to acquire additional assets, further expanding your portfolio’s size and diversity. In conclusion, leveraging pre-foreclosure properties to build a buy and hold portfolio is a strategic approach that can provide investors with opportunities for discounted acquisitions, creative financing arrangements, and potential equity growth. However, it is essential to conduct thorough research, due diligence, and negotiations while remaining aware of the associated risks. Done correctly, investors can create a well-rounded and profitable real estate investment portfolio that stands the test of time. Please visit https://www.ipa4rei.com/

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Energy Savings for Your Single-Family Rentals

Achieve Savings Through Regular Inspections & Proactive Maintenance By Jason Myers Conserving energy is not just good for the environment anymore. It is also good for your bottom line. Being smarter about energy use yields home energy savings and enhances the value of your rental properties. It is one of the easiest win-win scenarios possible today. Most investors like the idea of saving energy, but they assume the process will be too time-consuming or expensive to set up. Fortunately, there are numerous simple things you can do to cut energy costs that will not break the bank up front. Here are nine ideas to help you cut energy costs on your single-family rental (SFR) properties: 1. Do a Home Energy Audit The best way to cut energy costs is to first determine your baseline. An energy audit can provide this information. You can work with a certified auditor to evaluate your properties and identify and prioritize potential improvements or you can opt for a DIY energy assessment. Typical recommendations after an energy audit include adding insulation in your roof or walls; improved heating, cooling and hot water equipment; and installing new ventilation, LEDs and smart thermostats. 2. Install LED Lighting If you have not already made the switch to LED lighting, it is an easy way to enhance your energy savings. A single ENERGY STAR-certified LED light bulb requires approximately 90% less energy than traditional incandescent bulbs, which can save you around $55 over the life of the bulb. Even better, LED bulb life is about 15 to 25 times longer than an incandescent so you will be buying fewer bulbs overall. 3. Save with Air Sealing One of the most efficient (and often simple) ways to lower your heating and cooling costs is by sealing air leaks using weatherstripping and caulk. First have an energy assessor test your home for air tightness to determine if and where leaks are occurring. They will likely conduct a blower door test, which can identify leak locations and help determine if any areas of your property need additional insulation. 4. Energy-Efficient Appliances Your best bet for achieving home energy savings via appliances is to upgrade the current appliances to products with an ENERGY STAR label when they break down or age out. This goes for everything from microwaves and dishwashers to hot water heaters, stoves, washers, dryers and refrigerators. In fact, the U.S. Department of Energy estimates that you could save hundreds of dollars annually by replacing a 10-year-old refrigerator with a new ENERGY STAR model, and an ENERGY STAR hot water heater could save you up to $3,500 in energy costs over its lifetime. Have your property services partner inspect and audit the current appliances across your portfolio to create a database of information including the current ENERGY STAR rating, make/model and serial number, a life-of-product estimate, and recommendations for newer energy-efficient options when the time comes. 5. HVAC Preventive Maintenance Heating and air conditioning account for nearly half of residential electricity consumption, so keeping your HVAC system in top condition is smart for both conserving energy and prolonging its life. Preventive maintenance checks can help with both. During a typical check, HVAC air filters are replaced, and condensate lines are “blown out” to help prevent back-up, keep the system operating efficiently and reduce larger repair expenses down the road. Schedule regular checkups like these for preventive maintenance at least twice a year with your property services partner, and put them in charge of filter changes as well. This proactive combo can help prevent damage to your system and avoid costly emergency repairs as well as deliver home energy savings. 6. Smart Meters The ability to monitor energy usage in nearly real time is not a futuristic notion; it is already here, thanks to smart meters. Installing these gauges can allow your properties to communicate with their respective utility providers, improving reliability through faster responses to outages. You can also enhance efficiency in your systems by getting a better handle on residential usage and how to make changes to lower costs. 7. Window Upgrades Windows can be responsible for as much as 30% of a home’s energy use, so upgrading them can be a priority that pays off in the long run. If it is time for your windows to be replaced, this is a perfect opportunity to move to more energy-efficient models. If your windows are still in good condition, you can make strides in energy efficiency through smaller upgrades like eliminating air leaks, caulking and weatherstripping, applying solar window films and replacing window coverings with more energy-efficient options. 8. Insulation Improvements Are your SFR properties well insulated? This one measure can help reduce energy use, make the interior of your homes more comfortable for tenants (and thus reduce temperature complaints) and deliver home energy savings of up to 10%. Before making improvements, have a professional check for air leaks as well as assess the insulation levels in your walls, attic, basement and crawlspace to help determine a property’s needs and priorities. No matter how your rental agreements are structured, making improvements with the goal of home energy savings in mind can have long-term benefits for both you and your tenants. Energy costs go down (a draw for many renters), and you can lengthen the life of your HVAC system. A few simple changes really can add up to savings over time. 9. Find the Right Partner A good property services partner can help you determine the most strategic green upgrades for your properties as well as execute many of them while also performing preventive maintenance that ensures you get the most out of your SFR investments. Learn more at mcs360.com

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Property Management and the Buy-and-Hold Investment Strategy

Enhancing the Profitability and Longevity of Rental Investments By Jennifer Stoops Investing in real estate has long been recognized as one of the most lucrative and stable ways to build wealth. Among the various strategies employed by investors, “buying and holding” stands out as a time-tested approach to maximize returns and achieve financial freedom. Buying and holding real estate involves purchasing a property with the intention of owning it for an extended period. Unlike other investment strategies like flipping properties, this approach focuses on long-term wealth accumulation and cash flow generation. The idea is to buy a property at a favorable price, hold onto it for an extended period (usually years or decades), and let the property appreciate in value over time. There are many benefits of the buy-and-hold real estate investing strategy: Appreciation Real estate properties tend to appreciate in value over the long term. By holding onto a property for years, investors can benefit from substantial appreciation, which contributes significantly to their overall wealth. Passive income Buying and holding real estate allows investors to generate a passive income stream through rental payments. Rental income can cover mortgage expenses and other property-related costs, creating a steady cash flow. Tax advantages Real estate investors enjoy several tax benefits, including various tax deductions and depreciation. These tax incentives can lower the overall tax burden and increase the profitability of the investment. Hedge against inflation Real estate investments act as a hedge against inflation since property values and rental incomes often rise with inflation. As the cost-of-living increases, rental rates can be adjusted, protecting investors from the erosion of purchasing power. The Property Management Part The benefits of investing in and owning long term rental properties are significant, but it is not all rainbows and unicorns. Once you own a rental property, there is the matter of managing the property. This is a critically important piece of the buy-and-hold strategy and yet is often overlooked and undervalued in how it can affect the return on your investment (ROI). Often, the significance of managing the asset is not recognized until a problem occurs, which is often very costly. Typically, we use professionals in our lives who specialize in various fields that bring knowledge, expertise, value and protection to us. In the world of buy-and-hold real estate, a professional property manager may be your best investment for the continued increase in the return on your investment. With all the issues surrounding our economic climate, including squatter issues, eviction moratoriums and housing affordability, professional property managers are equipped to handle these issues. Why Use a Property Manager Effective property management is paramount to the success of the buy-and-hold strategy. Properly managing real estate assets ensures that investors can maximize returns, minimize expenses, and maintain the value of their investments. Engaging professional property management services can relieve investors of the day-to-day responsibilities of running rental properties. Property managers handle tasks such as tenant screening, rent collection, property maintenance, and compliance with local laws. Professional property managers are like an insurance policy as they bring an intimate knowledge of the local real estate market to the investor. This expertise allows them to accurately determine optimal rental rates, ensuring that the property generates maximum income without deterring potential tenants with overly high rates. Additionally, property managers are well-versed in the local property laws and regulations, helping investors avoid legal pitfalls that could result in costly fines or lawsuits. Owning and managing rental properties requires a significant time investment, from advertising vacancies and screening tenants to handling maintenance requests and emergencies. By hiring a property manager, investors free up their time to focus on other aspects of their lives or business. Property managers also act as a buffer, shielding investors from the day-to-day stresses and issues that can arise with tenants and maintenance. One of the most critical tasks in property management is tenant screening and placement. A professional property manager conducts thorough background checks, credit assessments, and rental history evaluations to ensure that only reliable and responsible tenants are chosen. This diligent screening process reduces the likelihood of rent payment issues and property damage, safeguarding the investor’s income and property value. Consistent rent collection is essential for maintaining stable cash flow. Property managers implement efficient rent collection systems, making it easy for tenants to pay and ensuring that the investor receives their income promptly. Moreover, in case of any rent-related issues, property managers handle late payments and enforce lease agreements, reducing the burden on the investor. Property maintenance is an ongoing necessity that can consume a significant amount of time and resources. A property manager maintains a network of trusted contractors and service providers, ensuring that any repairs or maintenance needs are addressed promptly and at reasonable costs. This proactive approach helps preserve the property’s value and keeps tenants satisfied. Having a vacant property is one of the leading causes of stress for an investor. Vacancies can be costly for investors, as they lead to income gaps. Property managers employ effective marketing strategies to minimize vacancy periods by creating compelling property listings and utilizing various advertising channels. They also have access to a pool of prospective tenants. Do you know the laws for the state, municipality or HOA where your rental property is located? There are state laws, municipality laws, HOA covenants and restrictions, city and town ordinances, code enforcement, all information you need to know regarding your property to keep from inadvertently doing something wrong. Navigating the legal landscape of rental property management can be complex. Property managers are well-versed in tenant-landlord laws and regulations, ensuring that all interactions and agreements are compliant. In case of disputes or conflicts with tenants, property managers have the experience to handle negotiations and resolutions, protecting the investor from potential legal entanglements. In the world of real estate investment, time and knowledge are invaluable assets. Hiring a professional property manager is undoubtedly a prudent choice, giving investors access to expertise, efficiency, and peace of mind. From expert market insights to

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What Every Real Estate Investor Should Know About Insurance Claims

The Do’s, the Don’ts, and the Double-Checks By Shawn Woedl Experiencing a loss at one of your properties can be overwhelming, and dealing with insurance claims can be a complex process. By familiarizing yourself with the ins and outs of insurance claims before a loss occurs, you can proactively protect your business while minimizing potential setbacks. This general outline of do’s and don’ts can save you time, money, and potential headaches. Do  »         Thoroughly review your insurance policy // Before an incident occurs, take time to carefully review your insurance policy. While it may not be the most exciting read, this is your guide to what is covered and what is excluded. If you’re unsure about something, ask your insurance agent, and get everything in writing.  »         Promptly report ALL claims // Delays in reporting incidents could lead to prolonged processing or even a denial of your claim. As soon as a claim-worthy incident occurs, contact your insurance provider to initiate the claims process.  »         Document incidents // Take photos, videos and write detailed descriptions of what happened. Doing so will substantiate your claim and help the insurance carrier understand the extent of the damage. Don’t  »         Withhold relevant information // Failure to disclose relevant information about an incident can lead to claim denial. Provide accurate and complete details.  »         Exaggerate or provide false information // Fabricating or exaggerating details about an incident can lead to serious consequences. Insurance carriers investigate every claim and giving false information could result in denial or even legal action.  »         Make unnecessary claims // Minor incidents that you can afford to pay for out of pocket may not warrant a claim. Making frequent or unnecessary claims can lead to higher premiums.  »         Neglect necessary maintenance // After an incident has occurred, it is still important to maintain the property. Failure to do so could worsen the damage and may impact the outcome of your claim. The Balancing Act of Filing Claims Simply turning in claims should not directly affect your rates if they are not paid out. However, a pattern of filing unnecessary claims can affect your relationship with your insurance carrier. A string of loss frequency, even with no payout, makes carriers begin to wonder when the big loss (that they will have to pay) is going to hit. Maintaining a balanced claims history will help foster a positive and long-term relationship with your carrier. If one of your properties incurs damage that is not the result of a covered peril or not going to cost more than your deductible to repair, you’re better off paying for repairs out of pocket. What will affect your rates are frequent controllable loss claims. Controllable losses are incidents that could have been avoided or mitigated through proper precautions. In this respect, frequency is just as bad as severity. Insurance companies believe that if an investor manages their properties and businesses the right way, controllable losses are typically avoidable. Do your due diligence to prevent controllable property losses, such as:  »         Cooking and heating fires  »         Water damage from burst pipes  »         Theft  »         Tenant damage  »         Tree damage With that said, always inform your carrier of liability incidents, even if you’re unsure that a claim will be filed. If a claim does get filed, your carrier is in a better positionto help defend you because you made them aware of the incident when it occurred. Never try to negotiate a settlement for a liability incident on your own. Never Give an Insurance Company a Reason to Deny a Claim Ensuring that the information on your policy is accurate and up to date is extremely important. The last thing you want is to suffer a loss, file a claim, and be informed that coverage will not be afforded to you because of a clerical error. Below are a few key considerations that have a huge impact on the outcome of your insurance claims. Named Insured It is common for investors to utilize different business names, but if you’re not careful, this practice can leave you without coverage after a loss. Consider this: My insurance policy for an apartment complex is registered under my legal name, Shawn Woedl. My tenants pay rent to the business entity with which I bought the property, SW, LLC. If one of my tenants slips on the stairs and breaks their leg, they’re going to sue SW, LLC because that’s where they pay their rent. The issue is, if my LLC is not listed as “named insured” on my insurance policy, and a claim is filed, coverage may not be available. This is also a common issue when investors change their entity name but forget to update it on their insurance policy. The first named insured on the insurance policy must always be the entity that owns the property, whether that’s you or your business. Occupancy Status Reporting changes in occupancy status is the best way to ensure you always have the proper coverage. If your property is listed as “occupied” but is actually vacant, and a loss occurs, your insurance carrier may deny any claims. Insurable Interest Insurable interest is a legal concept stating you must have financial or other interest in the damaged property to be eligible for reimbursement. This basically means an entity that does not have interest in a property cannot insure said property. Let’s say you’ve inherited your aunt’s cabin in the Smoky Mountains. As soon as the deed is signed, your aunt’s homeowners policy no longer applies because she has no insurable interest. It is your responsibility to obtain insurance for the inherited cabin to be covered. Avoiding Claim Delays To avoid any discrepancies that may hinder the claims process, double-check that the following is listed correctly on your policy:  »         Property address  »         Mailing address  »         Listed mortgagee  »         The bank account for the “pay to” entity  »         Occupancy status Additionally, having a comprehensive understanding of the differences between Basic, Broad, and Special Form coverage

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Q&A with Alison Tulio, President, Incenter Tax Solutions

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A Conversation on How Property Taxes Influence Investment Property Acquisitions & Management Whether you are buying, selling, building or managing a real estate investment portfolio, property taxes are an important consideration. They can be a bell-weather for changing market values, an advantageous selling point for sellers and their real estate agents and, of course, they impact the net operating income (NOI), cap rate and financing math. If a property is over-assessed, a property tax appeal can also deliver an unexpected payday. Property managers may use the savings to make property improvements or add amenities that will attract tenants willing to pay higher monthly rents. We sat down with Alison Tulio, Esq., President of Incenter Tax Solutions, to get her thoughts on property taxes and their influence on the decision-making process regarding real estate acquisitions. Ms. Tulio has more than 15 years’ experience in this area, and she has previously represented and advised real estate investment companies on acquisitions, sales, financing and leasing matters. What are the high-level property tax trends in today’s real estate market? Real estate is always in a state of flux and, therefore, property taxes are as well. The housing market is constantly reacting to interest rate changes, higher or lower occupancy rates, inventory shortages or surpluses and expanding or softening purchase cycles. Property taxes follow these same cycles. In markets that have experienced significant real estate appreciation over a short period of time, properties may be under-assessed. In other words, local property taxes may rise even as home prices stabilize or cool. On the other hand, the U.S. needs to add more than 4 million rental properties by 2035 to meet growing demand. If property values in a desirable rental geography such as Austin, Texas, flatten out, taxes should eventually decline while rents continue to creep up — improving property NOI. It is hard to predict from one county to the next which is why monitoring your property taxes is so important. In addition, assessments as well as market values change year to year. If you are not having your taxes reviewed every year, it could result in a missed opportunity for savings. Meanwhile, if you invest in commercial office properties, you may still be struggling with high vacancy rates caused by the pandemic. Your property values should be coming down along with your property taxes. We have been conducting a pretty steady flow of property tax appeals for commercial property investors and managers for this reason. The savings are typically used to spruce up properties or make upgrades to systems or amenities like common kitchens or bathrooms. Why do the property tax math up front? Across much of the country, real estate prices are ‘normalizing’ and interest rates are peaking. However, both remain comparatively high and will be for the foreseeable future. Investors need to be aggressive about managing their borrowing costs and cashflow. Even a slight uptick in property taxes can upset the most judiciously prepared financials. Conversely, a reduction can change property ROI for the better while delivering some liquidity for reinvestment. If you are applying for financing, property taxes are taken into account as part of the property’s carrying costs and capitalization rate. Therefore, lowering property taxes will lower the projected debt-to-income ratio for financing calculations including borrowing limits and interest rates. Factoring in future property tax adjustments based on local market values and trends should inform 5-10 year ROI projections on rental properties. Especially in areas where there is a cap on property tax increases. These work as a hedge through markets of strong appreciation. The property values may go up significantly, but the property tax cap protects against tax spikes that negate property income projections. Two percent of assessed value is the U.S. average taxrate for multi-family rental properties. How do property taxes influence real estate purchase decisions? At the very least, local property tax rates indicate if a town or city is ‘business- or industry-friendly.’  For residential real estate investors, tax rates reveal how towns and cities compare on quality-of-life priorities including local investment in schools, public services and amenities such as libraries and parks. This is especially important to investors in SFR and multi-families. Obviously, local property taxes also reflect resident wealth levels — a key consideration in any real estate investment strategy. Real estate pundits currently predict a 10% decline, a correction really, in property prices as the market normalizes. Checking a city or town’s recent property tax adjustments history may help investors better project near-term property cap rates. In geographies where housing prices have skyrocketed since the pandemic, property taxes that lag behind higher assessment values are likely to go up. This knowledge may help determine if an investor should buy, sell or hold a property. More tactically, real estate agents may use the prospect of lower property taxes in locales that are over-assessed or beginning to see pricing declines to entice investors. Some go so far as to request a property tax review prior to listing. If the reviewer determines an appeal would likely be successful, the real estate agent can use this as a positive selling point. Reviews are free so the agent has nothing to lose if an appeal is not recommended. How do property tax appeals work? The property tax appeal process varies throughout the United States. Each taxing authority has a deadline for filing the appeal. Property owners can conduct the appeal themselves, but it can be daunting. They need to make sure they are using the correct data and or formulas, gather the appropriate documentation, hire an appraiser if required and attend the appeal hearing — all of which is time-consuming. A professional property tax appeal firm will first tell you whether or not your appeal has a strong chance of being successful. If yes, they will then take care of all the documentation and preparation for the appeal, including the appraisal. If advisable, they will also hire an attorney specializing in tax appeals to attend the hearing. There

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