Wednesday, November 26, 2014
As states grope toward a model for handling marijuana legalization, property owners are starting to face some new issues.
At MarketWatch, personal finance writer Amy Hoak has some thoughts on 5 ways marijuana legalization affects real estate:
Increased industrial property explosions
One of the more popular marijuana products is hash oil, a more concentrated form of THC that you can ingest by putting it under your tongue or sprinkling it on food. Problem is, the process to make this oil involves butane (also required to make meth), and that is a big reason why explosions can happen during production, said Megan Booth, senior policy representative for the National Association of Realtors. In states including Colorado, Washington and California, property explosions have gone up dramatically, she said.
For that reason, if you’re an owner of an industrial property, you’d likely be extra careful before leasing to someone who intends to manufacture hash oil on the premises, Booth said.
Danger of civil asset forfeiture
Whether you’re the owner of a shopping center where a dispensary wants to open, you own an industrial property where marijuana could be grown or you’re a landlord renting an apartment to someone who uses or grows marijuana, you likely have at least some fear of civil asset forfeiture. That’s where the federal government can seize your property if it was used to conduct illegal activity (that was known or should have been known to the owner), or was purchased with the proceeds of an illegal activity, Booth said.
Since marijuana is illegal under federal law, property owners may forbid the growing or use of marijuana, just to steer clear of the possibility they’d lose their property because of it.
“Essentially, from the perspective of property managers, the challenge we have is trying to come up with the best practices for operating properties in an environment where we don’t have clarity about the enforcement or the interpretation of the laws,” said Fred Prassas, past president of the Institute of Real Estate Management and an assistant professor at the University of Wisconsin-Stout.
Harder for marijuana-related businesses to get mortgages
Banks are federally chartered, and because marijuana is illegal on a federal level, many lenders have no interest in approving a mortgage for someone interested in starting up some sort of marijuana-related business.
“It’s hard for these businesses to get loans,” Booth said. That’s why financing for these businesses is often done through private investors, she added.Keeping smells and mold out
For landlords who have a non-smoking policy on their property, it’s likely not difficult to keep people from smoking pot (enforcing the rules is another story). But if people are vaporizing their marijuana, it often comes in sweet flavors like strawberry—and can soak through the drywall, and be hard to remove, Booth said.
Growing marijuana requires lots of water, which can contribute to mold issues—becoming a worry for landlords, homeowners associations and individual home buyers deciding whether to make a purchase.
Home buyers should search for mold problems in a home suspected to be a grow house; sometimes, odd wiring systems used for lighting the plants and strange ventilation systems could be tip-offs, Booth said. While growing marijuana is permitted in some places, there are often limits and restrictions.
Grow houses, dispensaries have stigmas
Even when it’s legal by state law, there’s often a stigma associated with houses where pot was grown.
“I showed a house that was in a beautiful location on the Puget Sound…that had been used for a grow operation,” said Kevin Lisota, a real-estate broker in Seattle. “The plant just permeated everything in the house and it sat on the market for a very long time, despite its sweet location,” he said.
There’s certainly growing acceptance of marijuana use: Fifty-two percent of Americans said the use of marijuana should be legal in 2014, compared with 12% who said the same in 1969, according to the Pew Research Center. But that doesn’t necessarily mean that people want it in their neighborhood, Lisota said.
Even having a dispensary nearby can be a negative, Lisota said. “I don’t think it improves your home value to be located near recreational or medical dispensaries, in the same way you wouldn’t want to be close to a liquor store,” he said. “You don’t need people coming three doors down to get their weed,” he said.
These are all excellent points. My advice to landlords: Demand a lot of money and get it paid in advance.