4 minute read
all in the FAMILY
4 Keys to Preserving Multifamily Legacy
by Jennifer Loh
MONKEY BUSINESS/ADOBE STOCK Multifamily real estate is one of the most powerful, life-changing gifts one can bestow upon a loved one. For many investors, particularly families, inheritance is a well-intentioned gesture meant to provide financial independence and security to last lifetimes. And yet, far too often, this life-altering event results in intra-family disputes—a byproduct caused by broken communication and fractured relationships, sometimes far beyond repair.
For smaller rental property owners, a “set it and forget it” mindset naturally develops when acquisition and disposition events occur 15-20 years apart or longer. Rents are collected; bills are paid; and tenants come and go. Add the distractions of everyday life, and it becomes even more challenging to proactively position heirs for long-term success.
In the multifamily world, real-time circumstances and scenarios teach us the ins and outs of the business. There are legalities to follow and instincts to develop. Typically, heirs who inherit property lack experience in property management and multifamily investing, making it exceptionally challenging for any newcomer to navigate. When multiple siblings or family members enter these new waters together, unfamiliar roles are assumed, and the family dynamic forcibly evolves: What are the new responsibilities and tasks at hand? How are decisions made and agreed upon? How are disagreements settled? Further complicating matters are relatives or members of the partnership misaligned from the vision and overall goals of the portfolio—some may prefer to cash out, while others wish to continue. While there are many layers to every scenario, the inadvertent lack of planning is one of the underlying forces causing conflict, which too commonly escalates into heartbreaking scenarios.
As multifamily brokers, operators and housing providers, our goal is to help families navigate the transition as smoothly and peacefully as possible. Below are four keys to preserving your multifamily legacy.
1. OPEN CONVERSATIONS
While it is commonplace for investors to take the necessary legal steps to ensure real estate passes to the proper parties, go beyond the paperwork to have meaningful conversations with those who stand to inherit ownership. There are limitless benefits in explaining your beliefs, philosophies and contexts behind your multifamily real estate; primarily, heirs will have a better understanding of your investments and appreciate your achievements meant to be carried forward.
2. MAKE INTRODUCTIONS
If you self-manage, start integrating your loved ones by involving them in management matters and tasks. Expose them to real-life situations like fielding a maintenance request, collecting laundry money and/or reconciling monthly billing. If your property is managed by a team of professionals, facilitate relationships by making the proper introductions and encouraging collective decision-making.
3. WORK WITH PROFESSIONALS IN ADVANCE
It is never too soon to establish the groundwork for a succession plan. Be sure to engage the proper professionals (estate planners and tax specialists) well in advance to ensure this is done properly. It is also critical to work with a multifamily specialist who understands both the short-term and longterm goals of your portfolio—a capable professional wellequipped to manage your assets, advise on timing and align all decisions with the bigger picture.
4. EXPRESS YOUR WISHES
How do you envision your family using this gift? Do you have any specific instructions or matters of importance to you? By expressing your intentions upfront, your heirs will have a road map for future guidance.
While a clear and concise succession plan is the first and most important step in planning, going a few steps further will help eliminate surprises, prevent conflicts, preserve relationships and set your loved ones up for success well into the future.
TALKING PROP 19
In November 2020, Californians voted to pass Proposition 19 by a thin margin. The previous law permitted parents to transfer their principal residence of unlimited value, plus up to $1 million of base-year value of any nonprincipal residence properties to their children, without triggering reassessment. Prop 19 severely limits these nonreassessment transfers. As of February 16, 2021, the parent-to-child reassessment exclusion is limited to the principal residence of the parent and requires that the child utilize the property as their own principal residence. Additionally, even if the child utilizes the residence as their own, there is a cap of $1 million on the exclusion.
This tax change not only impacts how much heirs stand to benefit from inheriting your property, but also could lead to tough conversations among siblings. Certainly it should influence planning for those transfers. Making informed decisions together with your attorney and CPA can save money ... and preserve family relationships.
Jennifer Loh graduated with a bachelor’s degree in legal studies from the University of California, Berkeley. After subsequent studies at Stanford University and Harvard University, she lived in Shanghai, China, then returned to the U.S. to earn her real estate license in 2005.
For over a decade, Jennifer has held various roles with her family’s real estate companies: Wellington Property Company and LOH Realty & Investments. As a Leased Investment Specialist at WPC, she has executed more than 1000 multifamily and residential leases for properties throughout the East Bay. In 2019, Jennifer earned her California broker license and transitioned to multifamily sales, with a focus on serving individual and family-owned portfolios. In 2020, she closed $18.1M in transactions while completing the CCIM curriculum. Jennifer is currently an active Multifamily Broker, finalizing her $30M portfolio for the two-day qualifying CCIM exam to officially complete the designation.
