#244 Tax Credit for Overextended Renters?

This week we’re covering recent news stories including the Rent Relief Act, a record real estate deal in NYC, collaborative living in NYC, and a hidden gem in a commercial property.

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Resources Mentioned in this Episode

6 Friends Buy a Home in Toronto
https://free.vice.com/en_ca/article/59xp9z/how-six-friends-pooled-their-money-to-buy-a-dollar13-million-house-in-toronto

New Record Real Estate Deal in the U.S.
https://www.nytimes.com/2019/01/24/nyregion/238-million-penthouse-sale.html

Rent Relief Act:
https://www.elle.com/culture/career-politics/a26015639/kamala-harris-president-2020-healthcare-economy-gun-control-immigration/

Construction Workers Uncover 17th Century Painting:
https://news.artnet.com/art-world/hidden-painting-paris-1446490

Show Transcription:

00:04 Hey everybody. Welcome back to another episode of RentPrep for landlords. This is episode number 244 and we’re gonna be talking about some recent news stories from the past seven days and we’ve got some really cool stories this week. We’ve got a new record for the most expensive personal real estate transaction in the history of the United States. Uh, we’re also going to be talking about a pretty interesting proposal for a tax credit for renters. We’ve got a kind of fun story that about a large mural that was discovered in a rental property and we’re also going to be talking about a really interesting story out of Toronto and how millennials are making it work to buy a home in a very, very expensive market. So we’re going to get to that right after this…

00:51 1,2,3,4 ya ya ya…. Welcome to the RentPrep for landlords podcast. And now your host, Steven White and Eric Worral.

00:59 So you got just me host Eric Worral. As you guys know, if you’re listening for a little bit, I’ve been kind of a running the podcast lately and that’s for good reason. Uh, we’ve been really busy at rentprep. We’ve been expanding and trying to offer some new services and building out our products and one of the things that’s happening is actually the day of the release of this podcast January 31st, which is Thursday. We are launching a new backend platform and what that means for you is that if you run background checks, you’re going to have some extra options and we’re going to be expanding those options in the future as we continue to improve our services. The biggest thing that you’ll notice is that everything will look a lot slicker. A lot better design and be able to navigate around a as we have our own platform that we can build custom too. And if you are somebody who runs smart move reports, this is really exciting. There’s now the ability to add judgments and liens along with verifications to your smart move report. What that means is for judgments and Liens, those removed a little bit over a year ago from credit reports. So if you run a smart move report directly through transunion, you do not see the judgments and liens information on your tenants. Uh, you will be able to see that information now through reports, through RentPrep and only RentPrep. The reason is that those have to be run manually, so once the report is ran and the tenant does what they need to do, then our screeners can add that judgment and lien information and do those searches, the verification. So those are where our screeners or FCRA certified screeners will call the current landlord, previous landlord and current employer and verify the information provided on the rental application. So that’s awesome that you’ll be able to add all this additional information into an already great report through smart move through RentPrep. So, uh, with that out of the way, I just wanted to kind of update you guys on that because that’s the recent news we have going on here at the RentPrep offices. And hopefully wherever you are, you’re maybe south somewhere somewhere warm because I know it’s supposed to be brutally cold. Um, on Thursday this podcast is releasing. I’m looking forward to getting out and visiting family down south for a little bit. Uh, so hopefully I’ll be in warmer weather as well. But, uh, without further ado, why don’t we get into the recent news stories that are effecting real estate investors, property managers and landlords like your self.

03:19 So this first story comes from vice.com and it is by Anne Gaviola and the title is how six friends pooled their money to buy a one point $1.3 Million house in Toronto. So this might be the first arrangement of its kind, but it allowed a half dozen young people that are shut out of a prohibitively expensive market to actually own a place and they seem to be making it work. So, uh, this story highlights the fact that Toronto is an absolutely crazy market. So it said that I’m renting and buying both present a real challenge to millennials. The average price of a home in Toronto was $787,300 in 2018. And I’m assuming that’s Canadian dollars while a condo was $552,269 making one of the most expensive markets in Canada. To put that in context, a household earning the median income in Ontario have about $74,000 can with a solid credit rating, afford a mortgage for a home in the $415,000 range, which gets you an entry level condo. So a detached houses in Toronto on the other hand, come with an average price tag of $1.3 Million which is what they ended up buying collectively.

04:29 So these six people whose ages range from 28 to 38 years old, pooled their money together and made it happen. It’s pretty interesting because I guess it’s the first type of transaction like this in Toronto and possibly even Canada where they were able to get the mortgage lenders to work together on the project, which I had imagined would have been a nightmare to get that all straightened out. But these six individuals are going to own this home together and cohabitate it.you know, I’m sure you’re probably thinking the same thing. That sounds like a dumpster fire waiting to happen because I’ve lived in situations where you have, you know, roommates or something like that. And you’re all responsible for a piece of the rent and that can get kind of dicey. I’m just imagining six people being on the hook for a $1.3 Million mortgage and one of them loses their job and then that person has to move out. What do you do? Like do the other people like divvy up their percentage of the house? But at the same time I think it’s neat that it’s happening, uh, because obviously in Toronto with those numbers, as I mentioned before, that’s pretty insane market to try and purchase a property and so, you know, they’re trying to be creative and figure out a way that it’ll work. So it’ll be interesting to see what happens with that though. Uh, it seems like more of a recipe for MTV real world, like new show or something like that. A place that I’d want to live in probably be fun out the gates. But I could imagine, you know, in time as the, uh, people start marrying off or having kids or what have you, that it’s not going to be that fun of a situation. But will see.

05:58 So sticking with the theme of expensive living, so this one’s kind of crazy. This one comes in from the New York Times and this was written by Nikita Stewart and David Gelles and the title of it is that the $238 Million penthouse and the hedge fund billionaire who may rarely lived there. So in Manhattan were multimillion dollar real estate sales or downright routine, a hedge fund tycoon has managed to set a new standard for conspicuous consumption by paying a fortune for an unfinished piece of property in the sky. The billionaire, Kenneth C. Griffin, spent $238 million for a penthouse at 220 Central Park South that is still under construction, making it the most expensive residential sale in United States history. What’s more, in a New York tale that is not entirely uncommon, the 79-story building where Mr. Griffin’s penthouse will soon exist was built after the landlord evicted dozens of middle class tenants from their rent-stabilized apartments in what was a fairly modest, white-brick building with 20 floors. With a net worth estimated at $10 billion, Mr. Griffin, founder and chief executive of the global investment firm Citadel, is among the richest people in the world. And in recent years, Mr. Griffin has become increasingly willing to flaunt his wealth, spending lavishly on modern art, philanthropy and trophy real estate, even as income inequality is roiling the national political debate.

07:24 I don’t know, I kinda read that paragraph and I didn’t really love the fact that it’s talking about him flaunting his wealth with philanthropy. But that’s just my two cents on that. Uh, but yeah, this, uh, this gentleman, he’s got got homes all over the world. He has a $60 million penthouse in Miami, a $122 million mansion in London. And he says in totally, he has spent approximately 700 million in real estate, um, and nearly as much on art. So that is pretty crazy. He said he declined to join other billionaires in a pack to donate the majority of their wealth to charity created by Bill Gates and Melinda Gates and Warren Buffet in 2010. So to go back to the portion where they’re kind of talking about the landlord evicting the rent controlled tenants. Uh, if I looked into this a little bit further, there’s an article back in May of 2006. So this goes back a ways that said that 80 tenants were facing eviction for the tear down. These tenants, we’re in this building with a view of central park and they were notified that they were going to be evicted so a developer could tear the building down. So it looks like they tore the building down, built new, and now have somebody who’s purchasing just one penthouse house for $238 million. So from the standpoint of your investment, I know that, uh, it always gets kind of sticky when you’re evicting somebody for the purpose of, you know, trying to make more money on that investment. But it’s hard to argue with the numbers on this. And I kind of go back and forth because I find myself to be like a little bit of a bleeding heart where you’re like, well, what about those people? They had to go find a new place to live, but at the same time, like a rent controlled apartment with a view of central park that can go for $238 million for one penthouse. Maybe, you know, there’s some other places you could live where it’d be more in line with a rent controlled environment. I don’t know. Uh, I know that stuff. So he’s kind of a sticky widget to talk about. But that’s just kinda my two cents on that. But I don’t want to talk too much about that. So why don’t we talk about some other politics, right? All the things you’re not supposed to do on a work podcasts. But that’s okay. Because this one I believe is interesting for landlords especially.

09:31 So Kamala Harris she has a, if you’re not familiar, because I wasn’t familiar with who she was, but she is planning on running for the president in 20/20 and she stands on eight important issues. This is an article written by elle.com by Madison Feller, January 24th, 2019. So one of the issues has to do with taxes. So you may find this pretty interesting. It’s talking. Is it actually a tweet they have in the story from her? It says under the rent relief act, anyone who spends more than 30 percent of their income on rent will be eligible for a federal tax credit. What would you do with the extra money in your pocket? So she tweeted that out. It got a pretty good response. 14,000 people liked it. I don’t know how twitter works, but I’m not really on there. But uh, she also proposed that the rent relief act, which would give a tax credit to certain people who spend more than 30 percent of their income on rent. The bill has been criticized for being favorable to landlords since people could end up spending even more of their money on rent and because it doesn’t do anything to address the current supply of housing. Uh, yeah, that’s pretty interesting. Um, I believe that landlords are pretty in favor of this, uh, that you could essentially have tenants that are overextending themselves on how much they’re spending on rent, but the government’s going to kick in a tax credit so that they can afford a more expensive rental. Um, I think it’s right that way you’re going to see is you’re going to see rents go up, but that doesn’t necessarily mean that it’s gonna Affect the supply. As the article was saying. And I posted this in rentprep for landlords, facebook group, just to get some feedback on it, kind of curious what some of the landlords thought about it. Uh, one of the things that I had said is, it kind of reminded me of this story of when I was a kid, I had this one guy who’s in my grade got his driver’s license. Parents bought them like, you know, a $25,000 pickup truck then, you know, $15,000 and modifications on it. It was ridiculous. Like it had the bumper where the muffler would come out of the bumper, dual muffler, all this crazy stuff is really low to the ground. It’s like a racing pickup truck essentially. And this kid will get pulled over like once a week for speeding and the town. But the attorney that the family had, I don’t know if she was on a retainer or if they just paid for her, like one off because the family definitely had some money, but they would have their family attorney represent him in court every time they have to go to court. And from the way the story went, she was really connected with the town and the courts. Uh, so she could get pretty much any ticket thrown out if it’s just a speeding ticket. So this kid would get, you know, a, a speeding ticket a week, but he gets every single one of them thrown out. And what happened was he just never stopped speeding. Like he would just rip around town and even myself being a dumb teenager at the town I was like, wow, that seems pretty stupid and I want, I’m thinking of that story. I’m thinking of this potential rent relief act, which is going to give a tax credit because in my opinion, it’s kind of from, if you look at it through like a parenting lens is you’re not really addressing the issue. There’s no repercussion or consequence for somebody overextending themselves and living in a apartment that they can’t afford because what’s going to happen is the government’s gonna Kinda come in and give a tax relief to them so that they can afford it. But what happens if that tax credit all of a sudden goes away and now this person’s in an apartment that’s too expensive for them? Or what if it’s not the amount that they thought it was going to be? Or you’re really, you know, conditioning people to make poor decisions. Um, as far as what their affordable, uh, or what their limits are and what they can afford for a rental. Like, you know, the same thing’s true with somebody is buying a house, you know, you don’t want to be house poor because you’ve got a huge mortgage and you can’t afford it. Well, these people are going to be rent poor in the fact that they may be overextended themselves and maybe the program didn’t work out like they thought they would or they just were incentivized to spend more on rent than they were supposed to.

13:25 But like the story mentions a, it is an opportunity for landlords if this goes through because it probably will increase rents, but I, for one on this one, I’m actually kind of against the idea just because I think it’s bad for people in general. Uh, but we did get some interesting comments that came in through the group. Uh, Julie, she mentioned that she thinks that more people will want to rent them by. That’s a pretty interesting point. Um, didn’t really think of that. Um, and somebody else said it sounds like higher taxes for landlords that don’t mean increase in rent inflation and runner is nowhere better. Uh, that’s, that’s a pretty fair point too. It’ll be interesting to see because that money has to come from somewhere, right? You just can’t just start giving out tax credits for anything without it being allocated from somewhere. So where’s that going to come from? But yeah, it’ll be interesting to see what happens with all of this. So, uh, you can join that discussion in the rentprep for landlords facebook group if you’re not a part of that already.

14:20 So the last story that we have today, this one’s a really fun story. This one comes from artnet.com and it was, and it was written by Naomi Rea and the title says, construction workers uncovered and exceptional 17th century painting while renovating a designer boutique in Paris. So there’s probably some owns in here that I’m going to butcher their names and whatnot. But basically what happened was a workman accidentally uncovered the secret painting behind a fiberboard wall last summer while his team was renovating a building. And one of the nicest parts of the city, the 19th century building on the rood a margin on was formerly owned to a French noble family. And that 10 by 20 foot oil painting is believed to be more than three centuries old. So in art experts said it’s like essentially the holy grail and in their 40 years of restoring artworks is they’ve never seen anything like it. Uh, I thought this was interesting, just real landlords because it’s always fun hearing about these stories. I believe somebody had like, um, a copy of the declaration of independence. They bought like a $5 picture frame once at a flea market and there was an original copy of it or like a page or something that was missing. And I mean, those stories are so fascinating. But this is one where this was a commercial property that somebody was going to be leasing out to a art boutique and when they obviously pick the place because there was beautiful artwork throughout the building as it was. Um, but, uh, it said that they talked to the landlord and the owner of the new store, Oscar de la Renta as chief executive Alex bowland struck a deal with the buildings landlord to allow the painting to remain in the boutique. Bowling told The New York Times that he agreed to oversee the restoration if the owner is permitted the painting to remain in place at least until its current tenure lease expires. So the store is expected to open in the late spring. So what an interesting situation to be in as a landlord where you just sign somebody on for a 10 year lease, but they found this absolutely gorgeous painting on the wall that they’re going to be restoring and it said that in the piece or the restore could not speak to the value of the work. The highest price of work by de Vuez has achieved at auction, is $22,765 according to the art net price database. Um, but it was saying that that was considerably smaller one than one discovered in Paris. So this famous painter I guess they’d never had a 10 by 20 mural from him. So it’ll be interesting to see what that eventually gets priced out at. But yeah, how do you handle that as a landlord? Like on the wall, there might be something that’s worth $200,000 and you’re already established with the tenant and whatnot. But what great pr for your property for that new business, I mean, that’s pretty incredible. So, uh, I just thought that was a really fun story. Kind of a interesting way to end this week’s podcast. Next week we are going to be having on if you guys have listened to motivation Mike, a good friend of mine, Michael Sims is going to be on the podcast. I’m following him in and we’re going to have that set up for next Thursday and we’re gonna be talking about, you know, how to set yourself up with goals and be able to really go after things in 2019. Like where do you get your motivation from? Where do you get your gumption from? Where do you find your passion? Mike is like the most lit up fired up person I’ve ever met and I’m just gonna be tapping his mind on that. So be sure to check in next week and if you haven’t listened to his previous podcasts, you can search for motivation mike on rentprep.com and all of the stories mentioned today will be in the show notes and yes, uh, of course to hit us up if you have any questions joined the rentprep for landlords facebook group. And if you have any questions about our new platform suggestions, feedback, anything go and check it out at rentprep.com. If you sign up for a free account, you can go into the back end and you can see what’s going on there. Hopefully I’ll have some tutorial videos up for you, um, if, uh, if you’re new to the system that you can check out there as well. And you can hit me up at [email protected] If you have any feedback, I’d love to hear it. Alright guys, thanks for listening and look forward to catching up with you guys next week. Take care.