Did you read David Anderson’s November 12, 2016, letter published in The Suburban Times titled RIP becomes rottener? I understand not everyone agrees with David Anderson’s opinions. I imagine David Anderson understands that too. While it is difficult to fathom, not everyone agrees with my opinions either.
Whether we agree or disagree with Mr. Anderson, we should recognize and appreciate that Mr. Anderson is probably our best consistent and long term City of Lakewood government watchdog. Mr. Anderson follows, tracks and pays attention to what our city government is doing at all times. Nothing gets by Mr. Anderson.
I wonder when Lakewood City Council will want to suggest a proclamation in David Anderson’s honor for his constant work in maximizing city government transparency for our community?
Mr. Anderson’s letter focused on a recent recommendation to Lakewood City Council from Mr. David Bugher’s (Assistant City Manager and Development Director). Mr. Bugher is recommending that Lakewood rental property owners be charged $60 for a business license for each and every rental property location they own.
For a 100 unit apartment complex, the owner will have to pay $60 for a single business license. For an owner with 10 single family homes spread throughout the city, the owner will have to pay for 10 business licenses, one for each house for a total of $600.
A close examination of our recently enacted City of Lakewood vehicle license renewal ordinance shows that our city council has a track record for showing little to no interest in creating ordinances that are intelligently fair and equitable for all concerned. This conforms with Mr. Bugher’s demonstrated preference to do things the “easy way,” fair or not.
What is wrong with Mr. Bugher’s proposal?
The first question to ask is when a citizen owns rental property, is the activity a business or is it an investment? Most property owners are property investors. They do not own a business. They own an investment. Therefore a business license is not appropriate.
If a citizen owns common stock, does he own a business that requires a business license or is he an investor. If the city decides to force everyone to disclose their stock holdings, will we have to get a $60 business license for each and every stock we own?
If a third party owns a company that manages rentals for property owners, the property management company is a business. This would be a good example where a business license is appropriate.
The next question is how is the rental investor business structured? Typically it is a single person or married couple style operation. When I owned rentals, my wife and I managed our rental investment portfolio from our home. She served as bookkeeper and I served as the investment manager.
Managing 10 single family rental homes from our in-home office should only require a single business license, for $60, not 10 licenses for $600. We have one business and one office with an inventory of ten houses. We do not own ten businesses. IRS does not require that we file 10 tax returns for 10 rental homes. There is one tax return regardless of the number of rentals.
Each house is a part of the investor portfolio inventory. Does it make sense to charge Safeway $60 for a business license for every item in their inventory inside the store? I think not. Safeway is a single business.
Typically new rentals start out with a negative cash flow. More money is going out than is coming in. As time passes rents typically catch up and the property breaks even. Eventually there will be positive cash flow. Now the city wants to swoop in and make that long term investment process more difficult by gouging property owners with excessive charges.
Here is my recommendation for any landlord who is victimized by the city license plan.
- Action Step 1: Send a letter to all tenants describing the City of Lakewood business license money grab and the fact that the city ordinance negatively impacts your rental investment operation. Serve notice of a rent increase in the amount of $120. That is $60 to cover the business license for each property and a second $60 to cover your loss of time and aggravation in dealing with city bureaucrats and their red tape.
- Action Step 2: Sell your Lakewood rental properties to extricate yourself from a city that promotes a negative and hostile environment for property investors. Creating a desire to sell rental properties may well be an unspoken part of the City of Lakewood’s agenda. If the city can drive rental properties out of the city we can change our 54% rental property ratio to more owner occupied properties. Lakewood City Council’s unintended or possibly intended impact on the law of supply and demand will force renters to either pay more, live in apartments or to be forced out of the city.
Mr. Bugher likes his plan because it is easy. If Mr. Bugher likes easy, why not have the landlord include a rental property location inventory sheet with each license renewal. One $60 license with all 10 properties listed.
While my suggestion is easier than administering 10 business licenses, there is no opportunity for the city to put their hand in the property owner’s pocket.
Why does Mr. Bugher think he has to keep track of where these properties are located for safety? Is he going to keep track of your owner occupied home for safety? Nope. Hey, if a rental house is on fire, whether it is in Mr. Bugher’s business license file or not, someone will ask the fire department to help out.
City council, my challenge to you is to think ethics, fairness, common sense and city reputation and lastly think of the renters who you claim to be looking after.
Agree or not. That is how I see it.
Disclosure: I have 40 years experience as a rental property investor, property management company owner, real estate broker and property developer. That should mean I know something about this topic, which is why I have written numerous articles in reaction to proposed city policies.
Conversely, I am completely objective in that I am retired from the real estate business and no longer own any rental properties. While I am against unfair city policies targeting real property investors, these city policies have no direct negative financial impact on me.