All Forum Posts by: Tyson Scheutze

In this post, I am turning it over to Alex Becker. He will be discussing his thoughts and insights on the recent IMN Build-to-Rent Forum that he attended with Jason Weathers!

The Build-to-Rent (BTR) industry has garnered considerable attention recently, with significant discussions about its growth and challenges. The Build-to-Rent East Conference provided an excellent platform for exploring the key trends and challenges shaping the industry. Let’s explore the highlights from the event and what lies ahead for this rapidly evolving sector.

A Positive Outlook for the Future of Build-to-Rent

Despite the current challenges, there’s an overarching sense of optimism surrounding the future of the Build-to-Rent industry. Developers, investors, and operators at the conference all expressed confidence in the long-term potential of BTR. The demand for rental properties is expected to remain high, particularly in urban areas, making the sector an attractive investment opportunity.

However, the path forward isn’t without its hurdles, and these challenges must be addressed to ensure the industry’s sustainability and profitability.

Challenges: Rising Costs and Market Conditions

The current market conditions are testing the resilience of Build-to-Rent projects. With rising interest rates, increasing building costs, and climbing insurance rates, many developers are finding it harder to make projects financially viable. In particular, these factors are making it difficult for some to get their projects “to pencil”—a term used to describe a project that is financially feasible and able to generate the desired returns.

While these conditions may present short-term obstacles, they also highlight the need for strategic planning and innovation in the development process. BTR operators are compelled to be more creative and efficient in their project approach, focusing on cost-control measures and operational efficiency to deliver value.

Operational Efficiency and Cost Control: The Key to Success

In the current climate, operational efficiency and cost control are more important than ever. For operators and investors to see results and meet their return expectations, focusing on these elements is essential. This means adopting smart building technologies, optimizing management processes, and ensuring that the entire lifecycle of a property—from development to day-to-day operations—is as cost-effective as possible.

In an environment with slim margins, the ability to run a tight operation can make or break a project’s success. Efficiency isn’t just about cutting costs—it’s also about delivering quality to residents while minimizing waste and unnecessary spending.

Hot Markets: The Midwest and Kansas City

One of the most exciting takeaways from the conference was the emergence of Midwest markets, particularly Kansas City, as hotspots for Build-to-Rent projects. These markets have become increasingly attractive due to their affordability, steady population growth, and job growth, as well as promising return metrics.

With many East and West Coast cities becoming saturated and expensive, developers are turning their attention to more affordable markets that still offer strong growth potential. Kansas City, for example, has seen a surge in interest from both investors and operators looking for areas with lower upfront costs but strong long-term potential.

The Midwest’s appeal lies in its balance of affordability and growth, providing a great opportunity for BTR projects to flourish while delivering solid returns.

Rethinking the Traditional Multifamily Model

The traditional multifamily pricing structure and operational model are increasingly proving to be obsolete and too expensive for current operators. As the market evolves, so too must our approach to pricing, property management, and returns.

The traditional approach to pricing rents and managing multifamily properties may no longer meet the demands of today’s market. Instead, more innovative approaches are needed, especially for operators looking to compete in a tightening market. Operators are under pressure to reduce overhead and increase operational efficiencies while still providing quality living spaces for residents.

Conclusion

While the Build-to-Rent industry faces some headwinds, there is no doubt that the future holds great promise for those who can adapt to current market conditions. With a focus on operational efficiency, cost control, and innovative pricing structures, the industry can overcome current challenges and continue to thrive in the years ahead.

The Midwest, particularly Kansas City, represents exciting new markets for BTR development, offering affordability, growth, and strong returns. As the industry evolves, some companies are setting the bar for smarter, more sustainable property management practices, proving that there is always room for innovation—even in a challenging market.

The future of Build-to-Rent looks bright, and those who can navigate the current landscape with strategic foresight will be well-positioned for success.

In this week’s blog, I am turning it over to the Director of Business Development for Auben Texas and Kansas City, Alli Malliton. She will be discussing her thoughts and insights on the recent NARPM conference!

Attending the NARPM conference was an incredible experience, filled with learning opportunities, meaningful networking, and exposure to the latest industry innovations. Whether it was engaging with peers, discovering new technologies, or gathering practical tips to enhance operations, this conference proved to be a valuable investment in professional growth.

One of the greatest benefits of attending NARPM is the chance to connect with like-minded professionals. From management company leaders to supplier partners, the conference provided a platform to discuss challenges, share successes, and build relationships that can foster long-term collaborations.

The conference featured a lineup of insightful sessions covering a wide range of topics relevant to property management. These sessions provided actionable takeaways, including best practices for operational efficiency, resident retention strategies, and compliance updates. It was particularly beneficial to learn from experienced industry leaders who shared their successes and challenges, giving real-world examples.

Another great part of the conference that we enjoyed was discovering the latest technology solutions offered by vendor partners. The innovations presented at the conference underscored how technology continues to transform property management. Staying ahead of these advancements ensures that property managers and owners can optimize processes, improve efficiency, and enhance the resident experience.

The NARPM conference served as a powerful reminder of the importance of continuous learning and industry engagement. The insights gained, the relationships formed, and the technologies explored all contribute to the ongoing evolution of property management. Taking the time to step away from daily operations and immerse in a learning-focused environment is an investment that pays dividends in knowledge, efficiency, and industry leadership.

For those who have never attended a NARPM conference, I highly recommend making it a priority in the future. The value of learning from peers, gaining new insights, and staying on top of industry trends is immeasurable. I’ll be applying the lessons learned and staying connected with the amazing professionals I met along the way!

In this week’s post, I am turning it over to Alex Becker. He will be discussing the importance of going beyond networking to really connect with people and grow your business.

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Recently, we came across an insightful article about networking tips from four of the top connectors in the CSRA. It got us thinking—business development (BD) is more than just passing out business cards. It’s about building relationships, listening, and providing real value. We couldn’t agree more.

Listening and Being Intentional

One of the key takeaways from the article is the idea that business development isn’t a one-size-fits-all strategy. It’s about listening and being intentional in your actions. Whether you’re meeting a potential client or an existing partner, it’s essential to understand their needs and concerns.

This can mean taking the time to understand what each property owner is truly looking for. Is it maximizing rental income? Minimizing vacancy times? Or perhaps they’re searching for peace of mind with a team they can trust to handle every aspect of their property? By listening and tailoring our approach, you can provide value far beyond just a simple business transaction.

Providing Value in Every Interaction

The article also emphasizes the importance of providing value. It’s not enough to simply have a conversation or make a connection. The goal should always be to create real, meaningful value in every interaction.

In the realm of residential property management, this value comes in many forms. It could be helping an owner navigate complex tenant issues, offering proactive maintenance advice, or developing marketing strategies that keep their property consistently occupied. Whatever the case, it’s about showing up with a solution that makes a difference.

Strategic Partnerships: It’s Not Just About You, It’s About Collaboration

One final point we want to highlight is the importance of promoting others’ content and forming strategic partnerships. The article’s idea of creating connections by supporting other professionals resonates with us deeply. Business development is about collaboration and strengthening your network by helping others, too.

Conclusion: Networking is Just the Beginning

In the end, business development is more than a buzzword or a simple networking tactic. It’s a philosophy—a mindset that focuses on building relationships, providing value, and helping others succeed.

Read on as William Owen discusses the proposed Georgia property tax amendments that were on the ballots in November and what they entail.

In the recent elections, Georgia voters considered a significant constitutional amendment aimed at addressing the escalating property tax burdens faced by homeowners. Georgia Amendment 1, which authorizes the General Assembly to implement a statewide homestead property tax exemption, has far-reaching implications for both current homeowners and the broader real estate market.

Short-Term Positive Impacts for Homeowners

The primary benefit of Amendment 1 is the cap it places on the annual increase in a home’s assessed value, limiting it to the statewide inflation rate. This measure is designed to shield existing homeowners from the rapid increases in property tax bills that have become a pressing concern. For many homeowners, particularly the elderly and those on fixed incomes, this cap can provide much-needed relief from what has been described as a “backdoor tax increase” due to rising property valuations [5].

Long-Term Benefits and Potential Drawbacks

While the immediate benefits for current homeowners are clear, there are several long-term implications and potential drawbacks to consider. The amendment could exacerbate the “lock-in” effect, where current homeowners are disincentivized from selling their homes and purchasing new ones. This is because the assessment limits reset to the new, current market value only upon purchase, making it less advantageous for homeowners to move. This phenomenon could lead to a more stagnant real estate market, as homeowners opt to stay in their current homes to avoid the full force of higher assessments [4].

Shift in Tax Burden

One of the significant concerns surrounding Amendment 1 is the potential shift in the tax burden from residential to commercial property owners and operators. By capping the taxable value increases for homestead properties, local governments may need to compensate for the lost revenue by increasing taxes on other types of properties, such as commercial buildings and rental properties. This could lead to higher tax bills for businesses and renters, who do not benefit from the homestead exemption [5].

Local Jurisdiction Autonomy

The amendment allows counties, consolidated governments, municipalities, or local school systems to opt out of the exemption if they choose to do so. This provision maintains local autonomy in setting tax policies but also introduces complexity. Local governments may opt out to avoid potential revenue shortfalls, but this decision would be irreversible once made. The opt-out process involves a notice and comment period with a March 1st deadline, which could be challenging for some jurisdictions [3].

Economic and Market Implications

The passage of Amendment 1 could lead to increased administrative complexity in property tax assessments and potentially create structural inequities. New entrants into the housing market may face higher property tax rates compared to existing homeowners, which could affect the fluidity and accessibility of the real estate market. Additionally, the amendment might encourage local governments to raise sales taxes to offset the lost property tax revenue, spreading the tax burden to a broader population, including those who do not own homes [4].

Broader Context and Alternatives

Georgia already has multiple state homestead exemptions in place, including the Standard Homestead Exemption, age-based exemptions, and exemptions for disabled veterans. However, Amendment 1 introduces a new layer of complexity by trying property tax increases to the inflation rate. Critics argue that such changes should not be enshrined in the state constitution, as they are difficult to reverse and may not be the most effective or fair way to cut taxes. Alternative reforms, such as implementing a statewide levy limit or streamlining the sales tax system, could be more equitable and less disruptive to the real estate market [2][3].

In conclusion, while Georgia Amendment 1 offers immediate relief to existing homeowners by capping the increases in their property tax assessments, it also poses significant long-term challenges. The potential shift in the tax burden to commercial properties, the lock-in effect on homeowners, and the administrative complexities all highlight the need for careful consideration and potential alternative solutions to address the broader issues of property taxation in Georgia. As the state navigates these changes, it will be crucial to monitor the impact on both homeowners and the overall real estate market.

Citations:

[1] https://reason.org/voters-guide/georgia-amendment-1-would-create-a-local-homestead-property-tax-exemption/

[2] https://fultondems.org/guides/2024-proposed-amendment-guide/

[3] https://www.fox5atlanta.com/news/what-exactly-is-georgia-amendment-1-important-property-tax-question-ballot

[4] https://taxfoundation.org/blog/georgia-property-tax-exemption-amendment-1/

[5] https://apnews.com/article/georgia-election-property-taxes-amendment-1cc7a1bc2af404efbe6771aaf1819c7f

[6] https://www.wabe.org/the-three-measures-on-georgias-ballot-and-what-they-mean/

[7] https://www.georgiapolicy.org/news/the-implications-of-amendment-1/

[8] https://www.georgiapolicy.org/news/would-amendment-1-bring-property-tax-relief/

Read on as William Owen discusses the ATI Exemption, how property owners can benefit from this tax law, and how to apply for yourself!

If you own property in South Carolina or are considering investing in real estate here, you may have heard of the ATI (Assessable Transfer of Interest) exemption. This exemption can be a game-changer when it comes to reducing your property tax liability. In this blog post, we’ll break down what the ATI exemption is, how it works, and how you can take advantage of it to save money on your property taxes.

What is the ATI Exemption?

The ATI exemption is a provision in South Carolina’s tax law designed to alleviate the financial impact of property reassessments triggered by transfers of ownership. When a property is sold or otherwise transferred, it often undergoes a reassessment of its value. This can result in a significant increase in property taxes, especially if the property has appreciated in value over the years.

The ATI exemption allows property owners to apply for a reduction in the assessed value of their property for tax purposes. This exemption is particularly beneficial for real estate investors, homeowners, and businesses looking to manage their tax obligations more effectively.

How Does the ATI Exemption Work?

Here’s how the ATI exemption process typically works:

• Trigger Event: An Assessable Transfer of Interest occurs when a property is sold, inherited, or otherwise changes ownership.
• Reassessment: Following the transfer, the county reassesses the property’s value, which could result in a higher tax bill.
• Application for Exemption: The new property owner can apply for the ATI exemption to reduce the taxable value of the property. This must be done within a specific timeframe (before January 31st), usually during the year following the transfer to take full advantage of the exemption.
• Approval and Adjustment: If approved, the exemption reduces the assessed value of the property, thereby lowering the property taxes owed.
• Let’s break it down with an example:

Suppose you purchased an investment property for $1,000,000, but its previous taxable value was $700,000. Here’s how the ATI Exemption would be calculated:

ATI Market Value (purchase price): $1,000,000

Previous taxable value: $700,000

25% reduction (ATI Exemption): $750,000

New taxable value: $750,000

Without the exemption, your property would likely be taxed at the full $1,000,000 value. That’s a significant saving!

Benefits of the ATI Exemption

The ATI exemption offers several key benefits:

• Reduced Tax Burden: By lowering the assessed value, property owners can significantly reduce their property tax bills, freeing up resources for other investments or operational expenses.
• Encourages Investment: For real estate investors, the exemption makes South Carolina a more attractive market by reducing the tax impact of property acquisitions.
• Substantial Tax Savings: The reduction in taxable value can lead to considerable property tax savings over time.
• Multi-Year Benefit: The exemption can apply for up to five years after the sale (based on SC revaluation cycles).
• Wide Applicability: It’s available for various types of properties, including multi-family projects, commercial properties, and even vacant land for development.

Who is Eligible for the ATI Exemption?

Eligibility for the ATI exemption depends on several factors, including:

• The nature of the transfer: Sales, inheritances, and certain other transfers trigger reassessments that may qualify for the exemption.
• Timely application: Property owners must apply for the exemption within the required timeframe. The deadline to file for properties purchased in 2024 is January 31, 2025 for the benefit to roll forward this year..

Other Important Considerations

• The exemption doesn’t apply to agricultural property, personal residences, or property assessed by the South Carolina Department of Revenue.
• Even if you missed the initial deadline, you might still qualify for partial benefits in future years

How to Apply for the ATI Exemption

Applying for the ATI exemption is a straightforward process, but it’s essential to act quickly and provide the necessary documentation. Here are the steps:

• Contact your local county assessor’s office to obtain the application form.
• Complete the form with details about the property and the transfer.
• Submit the application along with any required documentation, such as proof of purchase or transfer.
• Follow up with the assessor’s office to ensure your application is processed.

Conclusion

The ATI Exemption is a powerful tool for property investors in South Carolina. By potentially reducing your property’s taxable value by up to 25%, it can lead to significant savings on your annual property tax bill. Whether you’re an investor or business owner, understanding and leveraging this exemption can help you save money and maximize the return on your real estate investments. If you’re considering purchasing a property or have recently acquired property, don’t overlook this opportunity.

Don’t leave money on the table!

Remember, while this post provides an overview, it’s always best to consult with a tax professional or real estate attorney to ensure you’re maximizing your benefits under South Carolina law.

Thanks for reply @Gino Barbaro  

Cheap capital and debt, Introduction of new and awesome tech and an abnormally exceptional market has definitely obscured basic management fundamentals. The normalizing market is just starting to show some of the operational issues many investors will soon be faced with. 

Last week we had Auben Realty’s Brent Voepel talk about “The Price of Property Management” and specifically discuss (perhaps even justify?) why a 10% management fee could be a bargain for excellent property management services. Brent’s interesting blog (which can be found HERE) also posed the questions: What if management is horrible? Then what is the price?

From an investor’s perspective, it is hard to overstate the importance of professional property management and its impact on an investor’s return. And yet, most investors, big and small, individual to institutional, tend to only focus on one thing: the monthly management fee. In reality this is only one piece of the puzzle.

When I started managing single-family rental homes back in 2009 in Augusta, GA, there was less variance in the industry (and also less services available). Property management was 10% of the gross monthly collected rent. Maybe a manager would consider discounting to 8%. But the fees and services were pretty universal (at least in our markets). I was adamant about not devaluing our services and lowering rates in what I believed could only end as a “a race to the bottom” for our industry and profession. Volume property discounts were rare for us to offer, even with clients with hundreds of properties.

Little did I know how far the industry would be willing to discount and devalue its services over the next 10-15 years in pursuit of more management contracts and more doors under management.

When I started managing single family homes, lease up fees were the other main fee that investors focused on and the fees ranged from 50%-100% of the first month’s rent. Some other items came into play were manager percentage of late fees and maintenance oversight fees and renewal fees. But that was about the extent of the fee structure and services rendered.

It’s funny though, no matter what our fee structure was, investors only focused on our monthly management fee. I get it. It is the constant, recurring cost. Perhaps that singular focus perspective was possible 15 years ago. But with the array of services and fee structures current property management companies offer, it is entirely possible to pay an extremely low management fee and still be “fee-ed” to death as both an investor—and now even as a resident.

Over the past 15 years, the amount of managers and fee structure variance in our industry has been incredible. Flat fee services, multiple layer and level packages (Silver, Gold, Platinum) have accompanied all kinds of other offerings, tenant and eviction insurance, marketing fees, reporting fees, tech fees, and even talk-to-a-real person fees.

As SFR property management was evolving, an interesting thing occurred, the most capitalized and sophisticated investors (who also had the most volume of properties) asked for lower and lower fees, even as they asked for more oversight and property managers who could act like asset managers with a holistic view.

Property managers consistently battled for contracts with multifamily management level fees (4-6% monthly), even while the SFR asset class lacked the best (and most important) part of multi-family: uniformity and density. Lacking the uniformity and density, SFR property managers went heavily to more tech and less people (or at least remote people).

The tech has been incredibly beneficial for the industry but we believe the tech was intended to complement, not replace. Often, over the past 5 years in particular, tech has become the experience. It’s hard to understand how costly that tech is until you have an admin in Iowa reading from a script to renew a resident in Roanoke with no connection to the person, the property or place.

But people matter.

Residents and owners need humans (not AI) to assist in navigating them through certain aspects of their largest and most often, most emotional transaction in their lives.

Having a property management service that is connected to its communities but still offers speed and scale and oversight and efficiency is incredibly difficult, but I believe it can be done.

In this week’s post, I am turning it over to Brent Voepel.

I got into a conversation recently with people in the industry about the price of property management. In this discussion, we all agreed that for one property unit, the expected rate will be 10% and then it can decrease as the client adds more units or volume. As we were agreed to the normal rates in the business, I added a comment that made the group pause. What if management is horrible? Then what is the price?

Property Management is a tough business made up of various challenges that affect the managers and their ability to perform. In this ever changing world we live in, property management and business owners must adapt and change on a regular basis to keep up. Just look at the past 4-5 years. The industry has dealt with new technology geared at improving workflow and resident tours, a world-wide virus has come and gone, interest rates have drastically changed the environment and there have even been some major legislative changes that have impacted our industry. Property managers must take on these challenges if they want to realize the clients goals. These are some of the ways the clients could be affected by property managers who are not prepared:

Extended Vacancies

• Inadequate marketing strategies and tenant screening processes can result in prolonged vacancy periods, translating into substantial lost rental income.
• High tenant turnover due to poor resident relations further exacerbates vacancy losses.

Inadequate Maintenance and Repairs

• Neglecting preventive maintenance and delaying necessary repairs can lead to accelerated property deterioration and higher long-term repair costs.
• This can also negatively impact tenant satisfaction, contributing to higher turnover rates.

Legal and Compliance Issues

• Lack of knowledge or disregard for landlord-tenant laws and regulations can expose investors to costly legal disputes and penalties.
• Failure to properly handle security deposits, evictions, or fair housing practices can result in significant financial liabilities.

Ineffective Financial Management

• Inaccurate budgeting, expense tracking, and financial reporting can lead to uninformed decision-making and missed opportunities for cost savings.
• Failure to optimize tax strategies and leverage available deductions can further reduce net returns.

Diminished Property Value

• Inadequate maintenance, high vacancy rates, and poor tenant screening can negatively impact a property’s perceived value and appreciation potential.
• This can significantly affect the long-term return on investment when it comes time to sell the asset.

While a 10% management fee may seem reasonable for a well-performing property manager, the cumulative impact of mismanagement can quickly escalate the effective cost to investors, potentially outweighing any perceived savings on the management fee itself. Ultimately, selecting a competent and reputable property management company is crucial to safeguarding the profitability of real estate investments.

Apologies your experience was not what we would want for one of our clients. Good luck with your investing. 

Read below for my remaining notes from the Single Family Rental Forum (East) that are specific to build-for-rent!

NOTES

• Build-for-rent is the only game in town.
• Nationwide 45,000 current BFR in pipeline. There were 27,000 in 2023. There were 7000 in 2020.
• In BTR communities, think about what do we want to charge them for vs. what do we want to give them for free?
• Outdoor fenced space and smart home tech is expected in most BFR.
• Maintenance experience is the number one reason tenants leave BFR.
• BFR tenants are stickier than multifamily.
• Leverage lessons learned from BTR pioneers.
• Prospect pool For BFR overlaps multi and scatter sites.
• BTR residents often want less onsite people presence. Belief is they want freedom of interaction in their experience.
• Adjust what has been pertinent in multifamily and what has been pertinent in SFR to a better product.
• What is the difference between a value-add and opportunistic fund?
• One owner is looking to exit to middle to high sevens on yield on cost.
• Cap exits are high 5’s, low 6’s for some Class A product.
• Turnover cost projections should escalate: $500 first year, $850 second year, $1000 third year.
• Consolidation and density of BFR assets can be an issue for insurance companies.
• Owners should write a narrative about deals/assets for insurance providers.
• 2-3% rent growth is always appropriate.
• Rents are flattening.
• Buyers are focusing on untrended rents.
• Getting the pig through the snake, as an analogy for getting through current excess rental inventory absorption to get to a gap that will exist in a couple of years.
• A lot of opportunities to buy aged C-class homes at 8, 9, 10 caps.
• Small investor expense ratios are 40%.
• Large operator expense ratios are 37/38 %.
• Large platforms/institution expense ratios are 33/34%
• Big benefit of blanket insurance policies is to drive costs down.
• A lot of BFR is looking for a bridge product for 2 years to hope rates get back down in the 5% range.
• Cannot use HPA on BFR communities you plan on selling based on cash flow.
• 5-18% rental premium being achieved based on new construction communities compared to new construction scatter sites.
• For real time comps go to biggest operators BFR, small multifamily.
• More confidence about the cost of construction having stabilized.
• Some products which will not be good for retail buyers will also not be good for rentals.
• What is core + capital?
• On-site, timely maintenance is #1 amenity for BFR.
• You are buying a stabilized untrended yield on cost.
• Apartment data is very good for BFR.
• BTR more resilient to flat rental growth.
• Fundamentals of BFR are normalizing.
• Look at supply coming into any market you are developing.
• Look at yields that are accretive to debt.
• Investors in 2021 and 2022 looking at just yields and not market value of their assets.
• Put together asymmetry in your investments, cap the downside but stack upside.
• Underwriting the choppiness for the next 5 years, supply constraints will make a huge demand.
• Fundamentals are stronger now than they have been in the past 5 years.