Remember all the hub-bub and gnashing of teeth several months ago when Blackstone Group made a big to take over Equity Office? As you might recall, especially those of my readers who followed this news in these pages, there was quite a bit of activity when other suitors stepped up and made their own unsolicited bids to buy Equity, the world's largest owner of office properties. Equity was a public company and some felt the Blackstone bid was low. Turns out they were right on with their numbers, and, ultimately succeeded in purchasing Equity.
More interestingly, today Blackstone is taking its privately held company public in a huge IPO that has had people on Wall Street talking for weeks now. As many people ask me, can that much money be made in investment properties?
My answer is virtually unchanged . . . if the big boys are doing it, there is room for everyone.
Friday, June 22, 2007
Saturday, June 16, 2007
Formula For Determining Cash Flow After Taxes
Just a quick formula to share . . .
Here is how you determine cash flow AFTER taxes:
Take your NET OPERATING INCOME
(subtract) - the ANNUAL DEBT SERVICE
this equals = your CASH FLOW BEFORE TAXES
now, (subtract) - the TAX LIABILITY (savings)
this equals = your CASH FLOW AFTER TAXES!!!!!
With this information, you can perform an investment analysis on a property you are considering acquiring on either a before-tax basis, or an after-tax basis.
Here is how you determine cash flow AFTER taxes:
Take your NET OPERATING INCOME
(subtract) - the ANNUAL DEBT SERVICE
this equals = your CASH FLOW BEFORE TAXES
now, (subtract) - the TAX LIABILITY (savings)
this equals = your CASH FLOW AFTER TAXES!!!!!
With this information, you can perform an investment analysis on a property you are considering acquiring on either a before-tax basis, or an after-tax basis.
Friday, June 15, 2007
What Motivates You? Part 2
Yesterday I posted some hot button issues that motivate people to invest, particularly in real estate. Today I want to wrap up the discussion. Here are a few more distinct advantages of commercial/investment real estate:
1) Diversification -- Commercial real estate offers diversification from other investments such as securities (stocks and bonds) and commodities, which have different risks.
2) Psychological Benefits -- The fact that real estate is a physical asset (i.e. - bricks and mortar) provides a certain amount of psychological security over more nonphysical assets such as securities.
3) Positive Leverage/Principal Reduction -- In many cases, an investor may obtain financing with a lower interest rate than the overall unleveraged yield of the property. This will increase the yield to equity, including reduction of the mortgage balance.
New VISA Commercial Puts Down Consumers Who Use Cash
Boy, am I going to vent!!
Television commercials are often some of the most clever pieces of advertising out there. They can be memorable. And they can flat out send the wrong message.
Currently, there is a new commercial for VISA that implies that businesses of all kind run smoothly because everyone is using a credit card or debit card. Now, the commercial may be aimed at getting people to use VISA debit cards, but it is never stated. So the implication -- especially for younger viewers -- is that EVERYONE is using credit cards. What makes it frustrating for me and many others is that the commercial blatantly goes on to paint people who pay for something with cash or a check as somehow being "out of step" with the rest of society. To be succinct, the commercial blames us folks (yes, me included) for somehow "interrupting" the smooth flow of commerce.
So why does this commercial get me so worked up? Because consumer debt, or the credit crunch, or whatever you want to call it, is what has so much of our society in financial trouble. And regular readers of this blog know I vent A LOT about consumer debt screwing up families and their ability to invest in real estate, or even buy a home. The whole sub-prime loan problem is another issue I have dealt with in earlier posts. But these commercials flat out send the wrong message. There are two or three versions of the same commercial too.
Let's take it a step farther. I talk to people nearly every week who say they wish they could start investing in real estate. But they can't get a decent loan, or even put together a respectable down payment, because of the mountain of consumer debt they have piled up -- mostly in credit cards. And the credit card companies urge consumers to spend, spend, spend. And when people spend, spend, spend, they don't learn to save and invest, because they are satisfying their need for instant gratification, which the credit card companies enable.
I prefer to pay cash for just about everything. Why? Its my choice. And I'm not into the instant gratification thing. But I also know that when I'm short on cash, I don't buy stuff. Now retailers may not like that. But VISA is saying with its commercial, "oh don't worry, with our card you can have anything you want, anytime you want . . . AND you won't be a distraction or interrupt the smooooooooth goings on at your favorite retailers.
Bottom line? For me, I'll keep doing what I do. And so will millions of other Americans. We'll pay cash . . . and if that holds up a line, so be it! With commercials like these we'll soon be raising yet another generation that can't invest in their future because they believe its okay to buy a $4 pack of cigarettes, or better yet, a couple of cans of Red Bull -- with a credit card. SHEESH!!!
Television commercials are often some of the most clever pieces of advertising out there. They can be memorable. And they can flat out send the wrong message.
Currently, there is a new commercial for VISA that implies that businesses of all kind run smoothly because everyone is using a credit card or debit card. Now, the commercial may be aimed at getting people to use VISA debit cards, but it is never stated. So the implication -- especially for younger viewers -- is that EVERYONE is using credit cards. What makes it frustrating for me and many others is that the commercial blatantly goes on to paint people who pay for something with cash or a check as somehow being "out of step" with the rest of society. To be succinct, the commercial blames us folks (yes, me included) for somehow "interrupting" the smooth flow of commerce.
So why does this commercial get me so worked up? Because consumer debt, or the credit crunch, or whatever you want to call it, is what has so much of our society in financial trouble. And regular readers of this blog know I vent A LOT about consumer debt screwing up families and their ability to invest in real estate, or even buy a home. The whole sub-prime loan problem is another issue I have dealt with in earlier posts. But these commercials flat out send the wrong message. There are two or three versions of the same commercial too.
Let's take it a step farther. I talk to people nearly every week who say they wish they could start investing in real estate. But they can't get a decent loan, or even put together a respectable down payment, because of the mountain of consumer debt they have piled up -- mostly in credit cards. And the credit card companies urge consumers to spend, spend, spend. And when people spend, spend, spend, they don't learn to save and invest, because they are satisfying their need for instant gratification, which the credit card companies enable.
I prefer to pay cash for just about everything. Why? Its my choice. And I'm not into the instant gratification thing. But I also know that when I'm short on cash, I don't buy stuff. Now retailers may not like that. But VISA is saying with its commercial, "oh don't worry, with our card you can have anything you want, anytime you want . . . AND you won't be a distraction or interrupt the smooooooooth goings on at your favorite retailers.
Bottom line? For me, I'll keep doing what I do. And so will millions of other Americans. We'll pay cash . . . and if that holds up a line, so be it! With commercials like these we'll soon be raising yet another generation that can't invest in their future because they believe its okay to buy a $4 pack of cigarettes, or better yet, a couple of cans of Red Bull -- with a credit card. SHEESH!!!
Thursday, June 14, 2007
What Motivates YOU?
Do you know what motivates investors? See if any of these items are what pushes your hot buttons . . .
1) Positive Cash Flow -- Investment in income-producing properties often generates an income strean that can be used to fund different needs, such as retirement.
2) Tax Advantages -- As a result of deferred taxation, the after-tax return on commercial real estate typically is greater than an alternative investment with a comparable before-tax yield. The cost-recovery deduction (depreciation) normally defers -- and saves -- taxes, an effect that is magnified by debt financing.
3) Appreciation -- In addition to the periodic cash flows, the sale (or reversion) cash flow of a property can represent an increase in value.
4) Inflation Hedge -- Real estate investment typically has been an excellent hedge against inflation. And today's headlines show inflation is all around us, from gasoline price spikes to the sharp increase in the cost of groceries.
More "hot button" items for investors coming tomorrow!
1) Positive Cash Flow -- Investment in income-producing properties often generates an income strean that can be used to fund different needs, such as retirement.
2) Tax Advantages -- As a result of deferred taxation, the after-tax return on commercial real estate typically is greater than an alternative investment with a comparable before-tax yield. The cost-recovery deduction (depreciation) normally defers -- and saves -- taxes, an effect that is magnified by debt financing.
3) Appreciation -- In addition to the periodic cash flows, the sale (or reversion) cash flow of a property can represent an increase in value.
4) Inflation Hedge -- Real estate investment typically has been an excellent hedge against inflation. And today's headlines show inflation is all around us, from gasoline price spikes to the sharp increase in the cost of groceries.
More "hot button" items for investors coming tomorrow!
Wednesday, June 6, 2007
Ohio Lawmakers Already Looking To Fine Tune New Residential Property Registration Law
For owners of residential investment property in Ohio (one unit or more), get ready -- state lawmakers are getting ready to noodle around with the newly enacted "property owner/contact" registration process.
Originally a statewide answer to widely varying registration schemes in cities large and small around the Buckeye State, the registration "standard" now is apparently causing problems. And state lawmakers are going to see what they can do to make everyone happier. The issue is that smaller counties, which had no registration process at all, or had small towns with their own registration programs, are now responsible for the process and view the mandatory registration of contact information for residential property owners as an unfunded mandate. Which, technically, it is.
County auditors offices in the state's poorer counties are concerned about the extra requirements being assigned to them. The registration idea was born in Ohio's urban markets, where city and county officials were having trouble tracking down absentee landlords who skipped on taxes or neglected their properties. The thinking is that some counties might have the option to enforce the state law. That will be an interesting fight!
Stay tuned...
Originally a statewide answer to widely varying registration schemes in cities large and small around the Buckeye State, the registration "standard" now is apparently causing problems. And state lawmakers are going to see what they can do to make everyone happier. The issue is that smaller counties, which had no registration process at all, or had small towns with their own registration programs, are now responsible for the process and view the mandatory registration of contact information for residential property owners as an unfunded mandate. Which, technically, it is.
County auditors offices in the state's poorer counties are concerned about the extra requirements being assigned to them. The registration idea was born in Ohio's urban markets, where city and county officials were having trouble tracking down absentee landlords who skipped on taxes or neglected their properties. The thinking is that some counties might have the option to enforce the state law. That will be an interesting fight!
Stay tuned...
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