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Inflation Could Be Peaking

via CoStar.com The mood remained sour last week, with inflation reaching a 39-year high in December and retail sales unexpectedly declining over the month. But much like the recent jobs report, the view of a full year of data paints a picture of robust economic activity, which, combined with supply shortages, resulted in overheated prices. More specifically, the Bureau of Labor Statistics reported that consumer prices ticked up 0.5% in December over the month, ending the year 7% higher, while the less volatile core price index grew by 0.6%, or 5.5% higher than a year ago. The core price index excludes food and energy, which have seen large price gains recently. Used car and truck prices, and to a lesser extent new vehicles, continued to drive inflation higher as the global semiconductor shortage hindered automobile production throughout the year. Anyone who did not buy a vehicle in the past 12 months likely experienced overall inflation of around 5.3% over the year. Apparel prices grew by 1.7% over the month as shoppers saw fewer holiday deals — another category affected by supply-chain disruptions late in the year. Yet price growth in several categories edged lower. Energy prices, which drained disposable income from households throughout the year, fell by 0.4% in December. Rents and owners’ equivalent rents each grew by 0.4%, ending the year up 3.8% and 3.3%, respectively. That’s nowhere near the sizable increases in housing costs and rents we’ve experienced over the year, but it will take some time for these to be reflected in the price index. Still, several signs point toward inflation nearing its peak. Without additional fiscal stimulus and with the end of the enhanced child tax credits, the outsize demand experienced last year for many categories of goods should return to normal. Indeed, the savings rate has returned to pre-pandemic levels. The exception would be for spending on restaurant meals, entertainment venues and travel, which have suffered from capacity constraints and COVID-related fears. While consumers have suffered from sticker shock, their expectations of inflation continuing have begun to turn the corner. The Federal Reserve Bank of New York’s survey of consumers’ inflation expectations for one year ahead fell in December for the first time in 14 months, albeit the decline was by the smallest increment possible. Expectations for three years ahead remained flat but were 30 basis points below their peak in October. Also, last week several Federal Reserve Board members pledged to make containing inflation a top priority. Most noteworthy was the statement delivered by member Lael Brainard at the Senate Banking Committee hearing for her nomination to vice chair. Brainard has in the past been perceived to have a more dovish stance, preferring to support the Fed’s full employment mandate over its price stability goal. Chairman Jerome Powell took a similar stance at his own Senate Banking Committee hearing for his second term as chair. By the end of the week, that sentiment was echoed by several other members, including Christopher Waller, who suggested in a Bloomberg interview that four or five rate hikes could be possible by the end of the year if inflation persists in the first half of 2022. The Fed is also proposing to begin quantitative tightening this year in an attempt to shave its balance sheet, which has ballooned to almost $8.8 trillion during the pandemic, more than twice its balance in 2019. Of course, raising the policy rate to curb high levels of inflation while removing other supportive mechanisms invites the risk of applying too many tools meant to calm price increases while at the same time tamping down economic activity. With COVID infections raging again and supply chains still clogged, the Fed will need to monitor conditions carefully so that the economy avoids stalling. Retail Sales Increased by All but One Measure Fearful that supply-chain disruptions could cause a shortage in many key holiday items, many consumers shopped early and front-loaded purchases. Retail sales were consequently strong in October and November but fell unexpectedly in December by 1.9%, the first decline in five months. Seasonal adjustments were largely to blame, as December is usually a strong month for retail sales, and the pulling forward of purchases this year made the month’s numbers appear worse than they actually were. Over the year, retail sales grew by 16.9%, according to the Census Bureau. The largest drag on retail sales was due to the 8.7% fall in online sales, likely also due to seasonal adjustment factors. Sporting goods and furniture sales also fell significantly, a sign that perhaps consumers have had their fill of these pandemic-related goods. Meanwhile, sales at food service and drinking establishments fell by 0.8% in December. The spread of the omicron variant and rising hospitalizations disrupted reopening plans at bars and restaurants as holiday gatherings and celebrations were canceled. Putting seasonal adjustments aside, nonseasonally adjusted retail sales over the fourth quarter of 2021 were 17% higher than a year ago. This measure more accurately reflects activity in categories with strong seasonal factors as they wash out any impact from front-loading. For example, shopping at general merchandise, electronics and clothing stores were up 14% to 30% in the fourth quarter of 2021 from the previous year despite slipping between 1.5% to 3% in December alone. Meanwhile, sales at online retailers such as Amazon grew by a slower 10.2% in the fourth quarter — suggesting that many shoppers were eager to return to brick-and-mortar stores. What We’re Watching … This week and next we’ll see updated readings of the housing market. Record-low inventories have faced strong demand, pushing prices higher for both new and existing homes. But with interest rates set to rise, the market may finally have reached a peak, as affordability wanes and even higher-income buyers are priced out of the market. The National Association of Home Builders reported that homebuilders are more worried about shortages and rising costs of materials, as well as of labor, than about a lack of demand, but continually higher-priced homes will become unattainable for an ever-larger share of the buyer pool. CoStar Economy is produced weekly by Christine Cooper, managing director and chief U.S. economist, and Rafael De Anda, associate director of CoStar Market Analytics in Los Angeles.

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New Laws for 2022 Affecting CA Housing Providers

via Eventbrite.com In this AOA Live Stream, you will discover: THE NEWEST LANDLORD/TENANT LAWS (LEGISLATIVE UPDATE) EMERGING TRENDS IN THE RENTAL HOUSING ENVIRONMENT ANTICIPATED CHANGES TO THE EVICTION MORATORIUMS DO’S & DON’TS ON SCREENING APPLICANTS WITH COVID DEBT Mike Brennan is the owner of Brennan Law Firm in Arcadia, California. While the firm is active in all aspects of the landlord-tenant industry, it has a special emphasis on evictions and landlord-tenant litigation. Read More..

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Inflation in Southern California Reaches Highest Point Since 1990

via CoStar.com Investors watched warily as inflation in the United States reached its highest point in 39 years, reading 7.1% in December, according to the Bureau of Labor Statistics. As home to some of the largest ports in the country, the Southern California region has also seen banner levels of inflation, just to a different degree. The inflation rate for the combined metropolitan area of Los Angeles and Orange counties was 6.6% in December, the highest December level locally in 31 years. A dive into specific goods gives insight as to what’s driving price jumps and how it affects the commercial real estate sector. Read More..

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California Energy Disclosure Laws and the Path to Zero Carbon

Today’s property owners and managers are at the crossroads of market transformation. Gain insight into the current energy and water efficiency disclosure requirements for multifamily and commercial real estate. Learn about available financial and tax incentives YOU can best take advantage of. Gain an understanding of the positive impact... Read More..

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New state laws that will affect the rental housing industry in 2022

via CAAnet.org Landlord-tenant laws taking effect next year address a variety of topics, from code enforcement to emotional support animals to how tenants access the property. Below you’ll find summaries of these laws, which take effect Jan. 1, 2022, and details on CAA’s upcoming New Laws Webinar. Code enforcement response: AB 838 by Assemblywoman Laura Friedman, D- Glendale, will prohibit local code enforcement agencies from placing restrictions or preconditions, such as mandating that the rent be paid in full, before responding to habitability complaints. Read More..

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Proposed California law would require landlords to own property for at least five years before evicting tenants

Assemblymember Alex Lee says serial evictors and property speculators have used the Ellis Act to evict tenants and convert those units into condominiums. Author: Lena Howland (ABC10) Published: 8:58 AM PST January 10, 2022 Updated: 7:11 AM PST January 11, 2022 SACRAMENTO, Calif. — A new bill is headed for a committee hearing on Wednesday that could change the process for evictions. AB 854 is a new piece of legislation meant to protect renters from serial evictors and is being introduced by Bay Area Democratic Assemblymember Alex Lee. The main change it would make is that landlords must own a property for at least five years before they can use the Ellis Act to evict someone. The Ellis Act was enacted by the California legislature in 1986 to allow mom and pop landlords a way to get out of the rental market. Lee said serial evictors and property speculators use the Ellis Act to evict tenants and convert those units into condominiums. "What we are going after are serial evictors and speculators who within the recent past are trying to go and flip units. They're buying properties where people exist, evict them and flip them for profit by turning rent-controlled units — which especially have vulnerable seniors and people of color or low income — and turning them into market-rate condominiums," Lee said. Since 2001, more than 27,000 units in Los Angeles have been taken off the rental market using the Ellis Act which has displaced more than 60,000 Los Angeles residents. RELATED: From bacon prices to minimum wage increases: California laws going into effect in 2022 In San Francisco, more than 5,400 folks have been forced out of their homes in that same time. Lee said he believes the new bill is part of a three-pronged approach to solving the housing crisis by preserving units that are already affordable. "We need to be producing a lot more affordable units, we need to be preserving units that are already affordable, and protecting the vulnerable working-class families that are in California," Lee said. ABC10 asked Lee what this means for an average renter in the state of California. “If this bill were to sign into law, it would mean that thousands of Californians have stronger tenant protections and will not be unjustly evicted just because someone’s flipped the property," Lee said. “So especially during the pandemic, it’s incredibly problematic that folks are being forced onto the street and so that’s why I think it would have the scale of thousands and thousands of households being saved from undue evictions.”

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What to Know Before Creating an LLC for a Rental Property

Interested in joining the more than 11 million real estate investors making money off rental properties? It’s a form of potentially passive income with great appeal, but like any investment, it also comes with potential risks. One way to mitigate risk is by setting up a business that would own the property rather than buying it in your own name. Creating an LLC for a rental property can help manage income, taxes, and liability for your rental business. If you’ve been wondering, “should I put my rental property in an LLC” this guide should help you answer that question and others related to the LLC business structure.

What Is an LLC?

LLC stands for limited liability company and is one of several business structures you could choose for your rental property. The structure ensures you are not held personally liable for any claims against the company or any debts owed. It allows you to be taxed as a partnership while getting the limited liability benefits of a corporation. An LLC can be you alone, with a partner, or with a group, and the LLC holds ownership of any assets placed in it. It can have a separate tax ID number, open a bank account, and conduct business transactions.

Benefits of an LLC

Starting an LLC for rental property makes good business sense for four key reasons.

1. Limited Liability

When you own a property as an individual, you are personally liable for any legal actions, which means your personal assets are at stake. By operating through an LLC, only the LLC’s assets would be at state should there be any lawsuit or claim made. This is one of the primary benefits of an LLC for rental property holdings since your tenants could claim the business.

2. Separate the Assets

Because an LLC is easy to set up, creating a new one for each property makes sense. This insulates each property from liability claims made on any others. It provides the same separation protection you get for your personal assets.

3. Pass-Through Tax

An LLC allows you to take advantage of what is called pass-through taxation. A business structured as a corporation would typically be taxed on its profits, then you as the owner are taxed again when you take out income. With an LLC, the company income passes straight through to you, and you claim it on your individual tax return. Your rental income is only taxed once instead of twice.

4. Personal vs. Business

Any corporate structure is going to allow you to keep your personal and business expenses separated. This allows you to write off and claim business expenses on your taxes since you will have separate bank statements for yourself and the LLC for investment property.

Creating Your LLC

What’s involved in setting up your LLC for a rental property? It’s important to understand when the best time is to do it, along with the potential costs in doing so.

When To Create Your LLC

The good news is whether you have your LLC set up before or after you buy, it’s a relatively simple process to transfer ownership over to the LLC. However, if you plan to finance the purchase rather than pay cash, there are definite benefits to having the LLC set up before the purchase. Transferring a mortgaged property could result in some additional headaches and costs.
  • Notifying your mortgage holder of the title transfer
  • Mortgage holder could close the loan and issue you a new one, which creates closing costs and potentially a higher interest rate
  • Notifying tenants that the LLC now owns the property
  • Update rental agreements
  • Transfer could trigger new taxes like a title transfer tax
Creating the LLC first means the property deed is in the company name from the start and keeps you from dealing with these issues.

How To Create Your LLC

Because the LLC is regulated at the state level, the rules and regulations for setting up a company might vary. But the basic process involves the following:
  • Choose an available business name
  • Fill out the Articles of Organization
  • Create an LLC Operating Agreement
  • Obtain any necessary licenses and permits
  • Register your LLC with the state
Once you’ve done all that, you can issue leases in the business name and set up your bank account. Costs involved in setting up the LLC can come from registration fees, title transfer fees, and legal fees for creating or reviewing your operating agreement.

Pros and Cons of an LLC

The LLC is a good structure for rental property businesses, especially if you are going into business with other people or entities. But there are some drawbacks to be aware of as well.

Pros

Limit your personal liability Separate and protect individual properties if you set up an LLC for each one Pass-through taxation keeps your income from being taxed twice Easily separate business and personal expenses

Cons

Additional paperwork for initial setup and bookkeeping Can be more difficult to get a mortgage as an LLC Potentially higher interest rates on your mortgage Annual filings and fees Despite the downsides, keeping your rental property in a dedicated business structure sets you up for success.

Considering Creating an LLC for a Rental Property?

Eager to get started in real estate investing? Creating an LLC for a rental property is a good way to protect yourself and your money from liability issues. Depending on the state you live in, you could benefit by making it easier to manage your income and taxes as well. Here are some good places to invest in property.

The Landlord’s Guide To Rent Collection

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Eviction moratorium case edges closer to Supreme Court

Landlord trade group’s petition gets attention of at least one justice A landlord group’s challenge to the City of Los Angeles’s long-running — and controversial — eviction moratorium has moved a step closer to a hearing before the Supreme Court. The development came when the court requested a response in the case from the City of Los Angeles. The odds of an eventual hearing before the nation’s top court remain long, but the request on January 10 means that the challenge from the Apartment Association of Greater Los Angeles (AAGLA) is still alive — and that at least one justice was interested in the case. “Every week they kick like a couple dozen of these [petitions] without a response, so the fact that someone the court is interested is definitely a positive sign,” said Jared McClain, a lawyer with the New Civil Liberties Association, a legal advocacy group that is supporting AAGLA’s challenge. Numerous amicus briefs that were filed in support of AAGLA, McClain added, supplementary interest that likely helped put the challenge on the justices’ radar. “It showed the court that there’s interest in the community about this case, and probably got someone’s attention on the court,” he said. A lawyer working on the case for the City Attorney’s office declined to comment, referring The Real Deal to an office representative. The representative also declined to comment. A lawyer representing AAGLA did not immediately respond to a request for comment. The Supreme Court’s action was the latest twist in what’s become a protracted, high-stakes legal battle that also illuminates a stark line cutting through everyday life and the economy. Many renters as well as landlords have grown increasingly adamant from opposite viewpoints of the eviction moratorium as the pandemic approaches its third year. “It is, but for the shooting, a war in every real sense,” one district judge noted as part of an opinion related to AAGLA’s challenge. “Hundreds of thousands of tenants pitted against tens of thousands of landlords — that is the tragedy that brings us here.”

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The City of L.A. issued its first eviction moratorium, and a freeze on rent hikes, in March of 2020, as a response to the sudden economic collapse brought by the early effects of Covid-19 and related shutdowns. The measures were intended to stave off another potential crisis: tens or hundreds of thousands of newly unemployed renters facing homelessness. But the tenant-centered protections meant that area landlords also lost income, and many small property owners have faced increasing economic hardship. “I don’t think legislators understand this side of the coin,” Irma Vargas of RST & Associates, a management firm that works with small property owners, said last summer. “They all think landlords are these fat cats that can withstand, and they can’t.” While federal and state eviction moratoriums have recently expired, the City of L.A.’s — which is tied to a local emergency order and has the strong support of local politicians, including Mayor Eric Garcetti — remains in place. AAGLA filed its first legal challenge to the ordinance in federal district court in 2020. The group lost that case last August, when a federal appeals court also denied the challenge. But the case has found some broader support within the real estate community and certain legal circles. The New Civil Liberties Alliance, a Washington, D.C.-based advocacy group, filed an amicus brief supporting the Supreme Court challenge in late December; the California Apartment Association, California Association of Realtors and the Foundation for Moral Law, a rightwing, Alabama-based legal nonprofit, have also filed amicus briefs in support. Two tenant rights groups – the Alliance of Californians for Community Empowerment Action and Strategic Actions for a Just Economy (SAJE) – are supporting the City of Los Angeles. AAGLA’s legal challenge relates to the U.S. Constitution’s Contract Clause which concerns private contracts and the limits of governmental interference. The landlord group is arguing the City of L.A.’s eviction moratorium, which permits tenants to forestall previously agreed upon rent payments, amounts to an illegal intervention; a potential Supreme Court hearing on the case, or a similar one, could have major ramifications for both the real estate industry and broader economy. The court will likely decide in March whether or not to hear AAGLA’s challenge.

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The Future of Electric Vehicles Poses Challenges for CRE

The electric vehicle market is charging up, as Barron’s notes. GM, Ford, Honda, Renault, Volvo, and even consumer electronics giant Sony are in the race. The near future looks to be more than mentions of Tesla. Commercial real estate needs to pay attention because there are some significant impacts on building and facilities design that mean special considerations and, for existing properties, changes that will likely be needed. Whether consumer vehicles that workers or customers would bring to a parking lot or delivery trucks that needed charging, there are practical implications of electric vehicles. “For most commercial and corporate occupiers space impacts should be minimal. EV charging will likely occur in already designated parking spaces converted for use," Chris Willis, vice president at Turner & Townsend, tells GlobeSt.com. “In older urban centers where space for parking is already limited, the desire for charging from consumers may lead to some reduction in attractiveness. Commercial charging is likely to occur either as additions or conversions of existing fuel station networks or in new-build sites." Then there’s delivering the necessary power. “The minimum power requirement will be 100 kilovolt-amps or more, assuming 10 parking spots are dedicated for the commercial installation of chargers," Hemal Doshi, president of Universal Green Group, tells GlobeSt.com. A kilovolt-amp represents the power being used in an electrical system and is less than the available power because of efficiency losses. At best, 100 kilovolt-amps would mean power of 100 kilowatts. More likely, the necessary power in kilowatts would have to be higher. Charging takes time. “It can take 6 to 12 hours to charge a Tesla on a Level 2 (240-volt) home charger," says Adam Lubinsky of design firm WXY Studio. Although the fastest commercial chargers can get the job done in far less—15 to 20 minutes according to Doshi, depending on the type of vehicle, faster charging means more available power. Charging also costs money. “Electric vehicle charging adds significant load to properties and increases demand charges, which can represent as high as 70% of a commercial owner’s energy bill," says James Geshwiler, chief strategy and investment officer at Catalyze, which consults in adding renewable power generation to properties. “In the case of a multi-family or mixed-use property, when everyone comes home from work and charges their vehicles at the same time, the demand charges spike. Converting the blueprint for commercial property to accommodate electric vehicle charging can be deceptively challenging and requires significant scale to be successful." And, as Willis adds, “Advancements in technology may require future upgrades to charging docks, which should be budgeted so the equipment does not become obsolescent." “Monetizing this real estate use or defraying costs for charging is critical to real estate," Lubinsky says. With current technology, electric trucks bringing loads will likely have to recharge before returning to their origin. Power requirements in urban centers can become even trickier as the nearest substation may or may not have the capacity to deliver what multiple companies will all need.

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