Central Bank Drops Interest Rate 1/4 Point

The Federal Reserve today announced it was dropping a key short term interest rate to 4.5 percent. The one-quarter percent cut is designed to stimulate the sluggish housing market. And of course, lower interest rates are always good news for real estate investors. This is the second time the Fed has cut rates this year.

Fed May Cut Interest Rate Again Tomorrow.

This isn't real estate information, but it is information that affects real estate.

The Federal Reserve is widely expected to further slice interest rates on Wednesday, but a second reduction in two months has economists split on the potential result. It might help boost lagging real estate sales (the commercial/investment market is strong, the residential market is weak). Others, however, are looking for a rate cut to help boost other sectors of the economy, particularly holiday sales.

NAR Report Backs Up This Author's Predictions

I'm no Uri Gellar, but basic fundamentals are basic fundamentals. Early last spring I predicted multifamily would continue to strengthen due to the looming credit crisis. Specifically, my belief was, and continues to be, that as credit for risky borrowers became more difficult to obtain, people who were planning to buy houses would continue to stay in apartments. I also stated that many people losing their homes would turn to apartments for living space.

I caught a lot of flak from people within this industry for being "negative." I wasn't being negative, I was looking ahead on behalf of my clients. Well here we are. The market stayed strong. The National Association of Realtors' latest Commercial Real Estate Outlook says the following: ". . . Potential first-time home buyers are hesitant and staying in the rental market, supporting multifamily fundamentals until the lure of home ownership returns, the housing cycle changes and more buyers enter the housing market." Interestingly, the report also notes that there has been a slight impact on multifamily from an unforseen growth of single family homes offered for rent due to their owners being unable to get them sold.

Co-Star Q3 Report Shows Drop in Office Absorption

The national office market posted net absorption of 18.9 million square feet in the third quarter, the second-lowest quarterly net absorption in the last 3 1/2 years, according to CoStar Group's Third Quarter 2007 Office and Industrial Report. Only the first quarter of this year posted a lower net absorption figure. Good reading. Check it out!

Merrill News Latest Example of 'Paper' Investments

Let me say this as plainly as I can . . . when you purchase stocks, you are purchasing paper. You own nothing tangible. Stocks may provide a dividend -- or they may not. You gamble that they will go up in value.

When you acquire investment real estate, you have relatively steady income, you have incredible tax writeoffs, and you can defer any capital gains by trading your property for other investment real estate. See below. How a company like this didn't see it coming, I still don't understand.

From Bloomberg News Service -- Oct. 24, 2007 -- Merrill Lynch & Co. reported the biggest quarterly loss in its 93-year history after $8.4 billion of writedowns, the most by any securities firm. The third-quarter loss of $2.24 billion, or $2.82 a share, was about six times higher than the New York-based firm estimated on Oct. 5. Merrill wrote down the value of subprime mortgages, asset-backed bonds and loans to finance leveraged buyouts, and Chief Executive Officer Stanley O'Neal said in a statement today that he is "working to resolve the remaining impact from our positions.''

"Merrill fell as much as 3.1 percent in New York trading and is now performing worse than any of its four largest rivals, after O'Neal misjudged the severity of the decline in the credit markets since July. Investors who lauded the 56-year-old CEO for chasing higher returns now question whether he policed the risks as he pushed the firm to become the biggest underwriter of debt securities backed by subprime loans.

"We're very disappointed,'' said Rose Grant, who helps manage about $2 billion at Eastern Investment Advisors in Boston, including Merrill shares. "I don't think Stan O'Neal will step down, but you do have to look at top management and wonder why they didn't know the extent of this loss.'' Click here for the full text of this story from Bloomberg News Service.

Some Great Books To Consider

I thought I would pass along some ideas for books to consider. These are all very good resources for better understanding investment real estate, and how it can impact an individual's financial planning. There are many books out there on getting rich quick; these publications are about building wealth. There is a difference.

Pick up a copy and see what you think!

"Exchanging Up," by Gary Gorman

"The Millionaire Real Estate Investor" by Gary Keller

"Real Estate Riches: Using Your Bankers Money" by Dolf de Roos

"Commercial Real Estate Investing: 12 Easy Steps To Getting Started" by Jack Cummings

Self-Directed IRAs Good Vehicle For Investing In Real Estate

Did You Know???

The great majority of investors believe that the money held in their Individual Retirement Accounts (IRAs) can only be invested into stocks, bonds, cash mutual funds or other "traditional" type investments. Not so!

The fact is you can invest in real estate, tax liens, mortgages and other high-yielding investments through your IRA. How? You have to understand that you and your IRA are not one and the same. IRAS are established to benefit you, but they are, in truth, a separate "trust." An independent custodian holds the assets in the IRA for you.

If you have a piece of investment real estate you want to hold for income, your IRA can purchase the property. The title is held in the IRA, and is titled to the IRA. For example, if it were in my name, the title might read, "XYZ Trust Company Custodian For the Benefit of (FBO) Brent Greer IRA." Get it?

Here are the major benefits: 1)Tax advantages -- When you sell you do not pay tax at that time because all the proceeds are kept inside the IRA. Any gain you have from the sale of real estate within your IRA will be tax-deferred (tax-free for a Roth IRA). 2)Access to capital - A frequent barrier to purchasing investment real estate is initial capital. But many people have money in their IRA that can be used to buy property for income (multi-family, commercial), raw land, even mobile homes. In addition, you do not have to own the entire property yourself. You can go into partnership with another investor.

There are some prohibited transactions, primarily those where you or your relatives have prior ownership. Specifically, your IRA cannot purchase a property that you or a relative are selling. These are called "self-dealing" transactions.

Your self-directed IRA might be a handy vehicle for helping you get into investment real estate without using out-of-pocket funds.

Major Banks May Set Up Bailout Fund To Ease Global Sell-Offs of Securities

Reuters News Service is reporting that major banks, including Citigroup Inc/, are looking at setting up a roughly $80 billion fund to buy ailing mortgage securities and other assets, in a bid to prevent the credit crunch from further hurting the global economy, sources familiar with the matter said. News sources told Reuters that representatives from the U.S. Treasury have organized conversations among top global banks, sources said, as financial institutions grow increasingly concerned that a certain type of investment fund linked to banks may have to dump billions of dollars of repackaged loans onto financial markets.

The concern? A fire-sale of assets could lift borrowing costs globally, trigger big losses from investors and force banks to further write down some holdings on their balance sheets. Such sales could trigger huge losses for banks, and in the worst-case scenario tip the U.S. or Europe into recession. The fund would be the latest response to a global credit hangover after at least three years of easy credit that fueled massive mortgage lending in the United States and spurred record levels of leveraged buyouts.

How Does A Reverse 1031 Exchange Work?

I had a client in the office yesterday with whom I have assisted in the disposition of rental properties, and the acquisition of a 30+ unit apartment complex. The question he and his wife had was on "reverse" 1031 exchanges.

The concept is relatively simple. It is, essentially, the opposite of a traditional 1031 tax-deferred exchange. The difference is that the investor is purchasing the replacement property "prior" to sale of the disposition property. But all the other rules remain. Here is how it works: The investor purchase the 1031 replacement property. A notation is made in the sales contract that the property is part of a 1031 tax-deferred exchange. The investor then has 45 days to identify the properties that are to be sold as part of the exchange, and 180 days (from the day the replacement property was purchased) to finalize the transaction(s).

As I stated at the top of the post, it is the opposite of a traditional 1031 exchange, but with the same rules.

Google Adds 6 New 'Streetview' Cities

From Inman News: Google Maps' controversial Street View feature (for more, see Google Maps Hits the Streets) expands to six more cities today with the addition of Chicago, Pittsburgh, Philadelphia, Phoenix, Portland and Tucson to its database. As a bonus, the images in Phoenix, Tucson and parts of Chicago are all in high resolution and the service has added the ability to pan up in any of the views, which is especially useful when looking at tall buildings.
Here's a quick marketing tip. Google Maps allows you to email a link to any location, so if you have clients currently looking at properties (especially if they are relocating from another city) email them the link to the Street View so they can take a virtual walk through the neighborhood.

BoA, JPMorgan Chase May Announce Record Losses

WOOF! The Financial Times is reporting that Bank of America and JPMorgan Chase are thought to be on the verge of announcing combined losses of $3 billion from mortgage-backed securities and leveraged loans when they report third-quarter earnings this month. The announcements would bring total losses at the world's leading banks from subprime-related assets to $20 billion, said the newspaper.

JPMorgan Chase's losses will come on leveraged loans of $1.4 billion, Sanford Bernstein analyst Howard Mason said in the report. He also anticipates it will suffer an additional $700 million in writedowns on mortgages and mortgage-backed securities, said Financial Times. Bank of America is expected to see around $700 million in leveraged loan losses and mortgage writedowns of $300 million. The newspaper added that the two entities lend significantly to private equity firms, so most of their writedowns will come from leveraged loan commitments they'd have to take a loss on if they sold now.

Yikes. More of the "things getting worse before they get better" phase we are now in. Hold on, it's going to continue to be a bumpy ride!

New PricewaterhouseCoopers Investor Survey Shows Credit Crunch Not Affecting Interest In Commercial Properties

New stats out from a PricewaterhouseCoopers Korpacz Real Estate Investor Survey show that investors remain strongly interested in commercial property despite credit market volatility and concerns about an economic slowdown. The survey adds that the major limitation to investment activity is a lack of properties coming to market. The interest is strongest in office, retail and industrial properties, but there are growing concerns about oversupply in the multifamily and hotel sectors.

In Ohio, particularly Central Ohio, there are definitely more investors than there are properties coming to market. We do not, though, have an oversupply of multifamily and hotels in the region. In fact, pressure on multifamily is driving up rents and values -- good for current investors but making for a more expensive proposition for investors looking for product.