Monday, December 29, 2008
Bob White was a quiet, unassuming man. Ex U.S. Special Forces, he led a hairy life in Vietnam. He only told me a few stories. Others he could not. After more than 20 years in the service, he retired with the rank of major and then broke into real estate. And never looked back.
A wonderful human being, a friend, a mentor, a truly gentle man, Bob -- principal broker of the Prudential CRES Commercial Real Estate practice based in Columbus -- passed away last night almost three months to the day after being given a 3-5 month life expectency from doctors, who diagnosed him with terminal cancer of the abdomen back in September.
I cannot even begin to share all this man has meant. But I can say this -- I would not be where I am today in the business were it not for him. As his pain increased, he carried it quietly. Oh, he would mention he was having pain but never let on just how much it was hurting him. The last two times we had real interaction (his visits to the office became sporadic in early November as he began to feel weaker) were at a regional Pru CRES meeting, and later, at his home. Despite his "discomfort," he never stopped working to help the agents in his office.
At the regional meeting, I gave a lead-off Best Practices presentation on exploiting bleeding edge technology for real estate marketing (blogs, video logs, podcasts, Twitter, etc.). I received a lot of positive feedback, but none of it more meaningful for me than from both Bob, and our company owner, David Mussari. Bob kept talking about it later on, and we took a moment after a special presentation of testimonial letters to him from colleagues past and present, to have a photo made together. It is pinned up at my home office. He is and will always be, an inspiration.
About a week and a half ago, I was at his house. He, I, and another ex military man, Ted Mosure, shared a beer. I never had the honor of serving, but I was honored to be in the company of these two men. Bob is a founding member of the Ohio Military Hall of Fame for Valor. He was doubly honored when those who determined who should be inducted into this hallowed hall chose him, and several others, to be the initial inductees. He later became one of the driving forces to keep this special recognition active, and has been instrumental in planning the annual recognition ceremonies. The OMHF ceremony held each May at the Ohio Statehouse is widely attended and is a highly moving and emotional service.
After Ted left, Bob and I,and his wife, Jody, had a long talk about business, life, what I want to do with my real estate practice, and so on. Knowing how little time he had left, here is this man feeling it is more important to keep instilling confidence in others, prodding all of us on, making sure we stayed positive when his life outlook was measured in days and weeks . . . and if he was lucky, months. He even recommended me to take his place on a particular Columbus city commission, though I don't know if that will come through. I may be the wrong political blood type. We will see.
That night I also got to closely inspect the 1954 MGTF he had lovingly been restoring for almost two years. He finally got to drive it in late November. Of that I am glad. He pored all his extra time into family, and his classic MGs.
In between the regional meeting and my visit to his home, Bob made sure to attend the Columbus Real Estate Exchangors holiday breakfast meeting on December 11. He had been busy the day before and was exhausted, I learned after. But he made made it a point to be there. Jody drove and actually, they were the first to arrive that icy, Thursday morning. I was glad to see them. Both, selfishly, for me . . . and because it was good to see him out, and not bed-ridden. As Jody noted in a wonderful comment to the post I wrote about the transition at CREE, he was glad I accepted the challenge of leading this dynamic organization for a year.
I still remember when I walked into the Prudential office a little over a year ago, and he said "Good Morning Mr. President." Seeing my blank stare back at him, he told me the CREE nominations committee was recommending me for president for 2008. My brilliant response was, "Nuh-uh!" Right. . . . really eloquent for a guy who usually has an opinion on everything. Still it was a great experience. And Bob was a cheerleader every step of the way.
He always had a grin on his face. Nothing seemed to get him down, even his illness. Forever the planner, he made his last remaining months one of making sure everything was taken care of so Jody wouldn't have more than her share to deal with, and meeting one-on-one with our office staff -- giving one final pep talk.
Bob, you built one hell of a team in the Columbus office from the ground up. From Day One you knew what, and who, you wanted. I was honored to be "Hire No. 3" among the agents and employees at our practice. We now have 19 agents and our commercial coordinator.
Even in his 70s, though he walked with a cane, I will bet he could still break someone in half with his bare hands. And yet, Bob White truly epitomzed the definition of a gentle man. All kidding aside, he will be missed.
The office has not been the same without you, Bob. I wish you well, my friend. You left a strong legacy down here in Suite 101 on Mound Street. I will do everything I can to make sure what you built continues to grow and prosper.
Just as you envisioned . . .
Sunday, December 28, 2008
This time it is commercial office developers and landlords.
Read it here in The Wall Street Journal.
I need to process this some and come to some conclusions before I just spout off . . .
Wednesday, December 24, 2008
Credit Suisse analyst Christopher Ceraso said in a report that the terms of Friday's government bailout of the auto industry will weigh on GM, with bond holders, the United Auto Workers and company executives all working to reach a compromise agreement. "It will become increasingly clear that the enormous sacrifice of value on the part of the union (upward of $10 billion) and bondholders (about $24 billion) will require the complete or near-complete elimination of the existing GM equity," said Ceraso in the report.
GM stock fell 21 percent on Monday to a little over three dollars a share. The drop occurred partly as a result of this news from Credit Suisse. And yet there will still be people racing out to invest in this giant of a company. Personally, I do not think the unions are making enough sacrifices. The company and the unions put the firm in this position in the first place -- no one else. The unions with their outrageous pension demands, and past leaders who went along. But this is common knowledge and no one seems to care.
What a I getting at? Sure it is tough enough for employees. But it is shareholders who will bear the brunt of this onslaught. Shareholders, in case you didn't know, are the last to be paid when a company sells product.
The vendors are paid, senior management and execs are paid, employees are paid, and if there is anything left -- the profit -- it is doled out to the entity responsible for keeping the entire thing afloat -- the shareholders. Yet these most important of people are the last to be paid.
Onc hell of a Christmas present....
One more reason why more and more investors are moving money out of the markets and into commercial/investment real estate. So they will be the FIRST to be paid.
Friday, December 19, 2008
Occasionally I am asked, "okay, what separates you commercial/investment real estate agents from other real estate agents?"
A good question. The obvious answer is specialization. Residential real estate makes up the bulk of what we hear about and read about. It is what most people think about when someone asks them "hey, what do you think about what is happening in real estate today?" But commercial real estate impacts all of us, also, even though most consumers don't think of it immediately.
Let me put it differently. Where do most people work? In an office building? Large, medium or small, it is commercial real estate. In a retail center? Commercial real estate. Perhaps at a mill, or some other sort of manufacturing facility. Commercial real estate once more. Where do a lot of people live? If they don't own their own home they are in an apartment complex. Or a double, or a four-family, etc. Perhaps they are even in a rental house. Lets look at consumer habits. Where do you shop? At a retail center/shopping center perhaps? Of course -- its commercial real estate. That new development taking shape down the block from your neighborhood? Commercial real estate. Don't forget about grocery stores, auto repair shops, office supply centers, where you go to get your hair cut or styled . . . the list goes on and on. It is all commercial real estate.
To be succinct, commercial real estate touches us all.
Add to that the fact that the owners of these properties aren't doing it for the general good, but do it for business . . . an an investment for a profit. And voila!...you have commercial/investment properties!
These properties are important because, unlike single family home ownership, there is business incentive. The best real estate agents working in the commercial/investment field have a skillset that goes beyond residential brokerage. An understanding of financial analysis, commercial trends, and building plans for the future.
What makes for a good commercial/investment real estate agent? Don't take my word for it. Look to the recommendations of the National Council of Exchangors (NCE) -- a loose confederation of member-driven organizations specializing in real estate exchanging. You know, the IRS 1031 tax deferred exchanges about which I often write. Columbus Real Estate Exchangors (CREE), the organization of which I am the immediate past president, and the Ohio Commercial Realtors Exchange Association (OCREA), a group I want to spend more time with, both are affiliates of NCE.
Here are the skills NCE says buyers and sellers of commercial/investment real estate should seek out when evaluating whether to use a particular real estate agent.
1) Client Counseling - The art of questioning and listening to achieve a close working relationship with the client and to understand fully the client's needs and objectives.
2) Formulas - The knowledge of a wide range of techniques used to structure transactions in the exchanging, financing, acquisition and disposition of property.
3) Taxation - A working knowledge of the income tax impact on various real estate transactions.
4) Forms - The ability to effectively use standardized forms common to the exchange marketplace.
5) Marketing - The skills, forms and methods of presenting property to the exchange marketplace and the professional conduct expected of a member working in the National Council of Exchangors Network.
So there you have it. The basis for a list of questions one might ask when looking to partner with a commercial/investment real estate agent on a transaction -- whether buying or selling income-producing property.
Thursday, December 18, 2008
Here are a few photos from the Columbus Real Estate Exchangors (CREE) meetings these past two weeks. Last week I presided over my last meeting -- the annual holiday breakfast and awards program. This event is a time for CREE members to just relax, socialize and recognize outstanding work in the field of commercial/investment real estate. A super event, filled with wonderful food and great friends and colleagues. We feasted on a sumptuous buffet breakfast at Little Bear Golf Club in southern Delaware County, Ohio, where the organization meets weekly for its marketing sessions and information exchanges.
Even with icy roads and cars spinning off highways and into ditches, nearly 100 members of CREE and their guests braved the weather to attend this annual event. Officers for 2009 were sworn in and we presented awards for outstanding IRS 1031 transactions by members during 2008. In addition, a number of members were recognized for special service to the organization during the past year.
Nicely done Judy. Thanks for the time you put into this epic ballad of a humble commercial/investment agent leading the most sophisticated, creative minds in this industry in Central Ohio. Like you said in your lyric, some days it was magic, some days it was like trying to herd bumble bees. But each day, it was truly a joy.
Here I am, flanked (from left) by Phil Manogg, Furman Tinon Real Estate, and Jim Simmons, Prudential CRES Commercial, 2009 CREE president and vice president, respectively.
At this morning's meeting, I was honored by 2009 President Phil Manogg and members who were present for the last marketing session of the year. They presented me with this beautiful plaque as thanks for my year as president of CREE. It was a good year for the organization. I believe, marked most importantly by a significant increase in membership.
Without question, I am honored to have been been asked to guide this ship during 2008. While it is called the "Columbus" Real Estate Exchangors, it truly is a multi-county, regional organization. Central Ohio covers some seven or eight counties and agents and brokers have clients not only here, but throughout the nation.
Founded in 1959 as The Trade and Exchange Association, its first president was Larry Horn. I was the 50th president. It is an incredibly dynamic organization of which I am proud to be a part. The most creative minds in real estate -- it sounds arrogant, even pompous -- but it is true. To be asked to lead this organization was humbling, to be sure. It was stressful, it was time-consuming, it was challenging. Most of all, in the end, it was fun.
Phil, Jim, Ryan, Amber, and all the members of CREE, here is to a fantastic 2009!
Monday, December 8, 2008
With that said, a colleague of mine -- wanting to spread some good will, and share in her good fortune in 2008 --has invited all of the renters of her multifamily properties to an open house at her church. No preaching on this night. The facility was conveniently available. But she is reaching out to do something nice for those folks who help her pay the bills all year long.
She is a good owner too, very responsive to her renters' needs. For if they don't stay, it messes with the business model and the revenue stream.
I thought it was something nice to write about as we had into the holiday season.
Wednesday, December 3, 2008
CREE, this remarkable organization of individuls -- truly the most creative people in real estate from throughout Central Ohio -- meets weekly to exchange ideas, learn about new commercial/investment properties on the market, and build on the use of 1031 exchanges to help our principals. As one member refers to it, our business is "the art of the exchange."
It is an exclusive group, I believe. For out of some some 7,300-plus members of the Columbus Board of Realtors, we number less than 200. But the impact we have on the industry, and for our clients, is infinite.
In the year since I took hold of the tiller, steering CREE through 2008, we have:
- Moved to a beautiful new meeting site, the Little Bear Golf and Conference Facility in southern Delaware County. It is a site that befits this group, as one of our members stated when we voted to make Little Bear CREE's home. After years of meeting in dank basements of masonic lodges, or forgotten (and smelly) rear training rooms of telecom companies, it was time, members said, to meet in a comfortable location. A location reflective the work we do on behalf of our clients. A location that spoke of the success we bring our clients who rely on our expertise to help them build wealth through real estate. Bill McCorkle, owne of Little Bear, is a great host and I thank him for making CREE feel so welcome.
- Grown membership from around 140 to nearly 200 real estate professionals and affiliate members servicing the real estate industry.
- Helped mediate a dispute between two respected commercial real estate agents. A team of CREE officers and members sat through meetings with both parties. While neither was likely happy with the outcome, the effort further facilitated communication and helped the parties avoid going to war with each other in court.
- Seen our reach grow, as commercial agents and lenders from areas far outside Central Ohio began making the weekly trip to the Columbus area to take part in what is now the largest regular gathering of real estate exchange experts anywhere in the state of Ohio. We have brokers coming from Medina (near Cleveland); Dayton (an hour to the west); Newark (45 minutes east); and lenders regularly coming up from Cincinnati (two hours).
I believe the infusion of new members speaks not only to the energy present in this dynamic group, but also to the wealth of knowledge available to those who take part on a regular basis. Forgive me if this sounds arrogant, but I know more than most real estate agents about weighing commercial/investment opportunities. It isn't just about getting a good price. It is far more complex. And yet, I am humble enough to admit I know I don't know everything -- that I would make it a point to be at CREE weekly even if I didn't have to. Because there is just that much new information shared weekly. I come out of there some weeks astounded at what I have learned.
I am proud of what we have accomplished during 2008. And am doubly honored not only that the CREE nominations committee back in 2007 asked me to serve as president, but that so many of CREE's esteemed long-time members have passed along their words of support for the growth, new vitality, new ideas and the even keel evident during the past year. My best wishes to my former right-hand, Tony Yacoub, who served through the first half of this year with me as CREE vice president, but who left Ohio for a tremendous opportunity in New York City. I have missed you these past few months my brother.
And I send my best wishes for a successful 2009 to the slate of officers nominated for the coming year: Phil Manogg of Furman Tinon Real Estate, president; my office mate Jim Simmons of Prudential CRES Commercial, vice president; Amber Balo, another sister of "The Rock" (forgive my Pru humor . . . she, too, is an agent with me at Prudential CRES Commercial); and Ryan Puckett, money coach and personal economy adviser with Columbus Financial Group, treasurer.
Special thanks for Ms. Balo who, as secretary, has followed through with my request to take detailed notes regarding the weekly marketing sessions, and "the sermon." Running a meeting, I don't hear the opportunities and details -- they don't process as well for me since I am keeping an eye on the room, moderating Q&A, and lining up the "next" presenter. Amber, thanks for making sure the notes were detailed so I could digest them each evening following our weekly Thursday sessions.
To my many colleagues at CREE, the Ohio Commercial Realtors Exchange Association (OCREA), and the Columbus Board of Realtors, I thank you for your support and friendship this past year. I could not have done it without you.
Finally, to one who when I was low reminded me that when handed lemons there is only one solution -- to make lemonade. You know who you are. I thank you from the bottom of my heart.
Tuesday, December 2, 2008
Here's why this is important. For real estate investors, medical office development is hot. Lots of new facilities being developed for expanding medical practices and service providers for the needs of that aging population. As one writer put it recently, "Even with an ailing economy, this product type remains a sound long-term investment."
Specifically, with sustained demand expected for healthcare services, experts anticipate the sector to remain a perennial favorite. I concur.
Medical office leases typically are for long terms. Think 10 years or better. Physicians and other service providers build out, often, with expensive assets. Doctors rarely move. Frequently these are Triple-Net leases with renewal options. Another advantage of medical office as an investment? Cash flow, stability and best of all -- predictability. Finally, the cap rate on medical office is often higher than most other investments . . . for all of the aforementioned reasons.
The November 2008 edition of Real Estate Forum magazine notes that the U.S. Census predicts more than 85 million people in the U.S. aged 65 and older by the year 2050. Even between 2010 and 2020, the population projections show the number of people aged 65 and older will increase by 36 percent.
The downside, and it is minimal, is that there may be a leveling off of sorts on occupancy rates as so much new product comes onto the market. Still, medical office appears to be a strong investment for real estate investors looking for steady, stable growth. Plus, I believe they are a good choice for investors using IRS 1031 tax-deferred exchanges to move up and build larger portfolios.
Friday, November 21, 2008
And while one piece of the advice is good -- ask your financial adviser what the heck is happening to your account and why -- they continue to leave out a critical piece of information.
All the conversation about 401(k) investments is about stocks and bonds, and the latest story from this investment news partnership continues to disappoint.
Here is the latest. Note the lack of any mention of investment real estate and 401(k) portfolios. Perhaps the most powerful piece of a diversified portfolio, mainly because real estate identified as an IR. 1031 asset, is indefinitely shielded from capital gains taxes. Indefinitely deferred, to be precise. And yet they ignore it.
So very sad, and yet another reason why I continue to be disappointed in my former profession.
Thursday, November 20, 2008
What investment property has ever dropped 30 percent in value in the first three days of the week?
I can only think of one. The World Trade Center towers -- but then that probably isn't fair since terrorists slammed two jet aircraft into them in 2001, murdering thousands of people.
Okay, I didn't really mean to shake you up that way, but my point is this. Barring some unforeseen, rare, virtually impossible event, real estate does not suffer precipitous drops in value. They don't even go down 30 percent in a week, let alone a month.
So the news today that the value of CitiGroup dropped 30 percent in three days-- after several weeks and months of decline begs the following query.
Why would anyone want to be investing in this questionable paper when there are perfectly good investment properties out there -- apartments, offices and the like -- that throw off cash every month?
(Note: Citigroup was trading at $25.42 at close on April 30 of this year. Today, it plunged to below five dollars a share. For more on the story, click here.)
Tuesday, November 18, 2008
OR, better put, when some low-level intern or general assigment reporter is told to put together a quick, bullet-itemed list of things you can do with an investment vehicle. Like, say . . . a 401(k).
But unsuspecting readers, who are doing their due-diligence (we hope), and trusting in websites that purport to be accurate are led astray. For example, here is a site on CNN (well respected as a business news vehicle, particularly when it partners with Money magazine) talking about 401(k)'s, with a notation that investors need to make sure they have the right mix of stocks and bonds.
But nary a mention of investment real estate. Could it be that so many of these writers, bombarded daily with news about the slumping real estate market think that the only thing out there is houses? Or are they lazy?
Cash on Cash readers know that investment real estate is a perfectly legitimate vehicle to place in this investment tool. Hmmm . . . MSNBC seems to understand this.
Just one of those things that bugs me.
Pricing and activity regarding multifamily investments is stable and trending slightly up, according to Real Capital Analytics Inc. This is being driven by attractive financing still available through Fannie Mae and Freddie Mac. In addition, building starts for multifamily are down across the U.S.
My observation -- New construction being way down (a more than 50 percent decrease in new starts, according to Reed Construction Data), combined with home foreclosures that have residents looking for alternative housing is pushing occupancy up -- good news for owners.
Warehouse and industrial properties are having a tough time right now, due to declining employment and an insecure economy, according to PPR. A lot of new warehouse space has come online in the past several months, into vacancy rates that are some 20 percent higher than expected.
My observation -- Don't look for improvements until late into 2009 and more likely in 2010. Developers will curtail new development for 18 months or so, and vacancy rates will improve toward the end of that time frame.
Liquidity issues are also preventing some developers from getting started on new projects they had in the pipeline. PPR's outlook suggests that this lack of new supply across the board (office, multifamily, industrial/warehouse) is a good indicator. The flip side would be oversupply in a down cycle, and as a friend of mine in the business likes to say, "that would be a bad thing."
The bottom line? There are still opportunities out there but you have to search them out. Plus, get the funding issue settled early on rather than waiting until a contract is in place.
My two cents . . .
Thursday, November 6, 2008
Today I am going to deviate from that general policy. I want to discuss the importance of partnering with a real estate agent who understands commercial/investment opportunities. It has been said that there are no problem properties, just problem ownerships. This is a fairly true statement. When a property isn't working out for the owner, chances are they bought it wrong (at the wrong price, for the wrong terms, etc.) or are managing it poorly. Those two bugaboos probably add up to more reasons than not why an investment does not work for its owner.
Some 15, 20 and 30 years ago, there were people who bailed out of the stock market and invested everything they had into real estate. Those who bought right, did well. Those who thought they knew it all, and did it on their own, did not, on average fare as well. And therein lies the rub -- with today's technology providing exponential increases in access to data, a lot of potential investors want to do it on their own. "I don't need a real estate agent," they say, believing that they can somehow save the money they would be paying an agent to represent them on the buy side.
Well here's a little secret . . . nine times out of 10, on the buy side, you pay no real estate commission. It comes out of the seller's side, funds that already have been allocated to pay commissions to get a property sold.
We are in that same climate today. People, smartly, are working to move money from other investment vehicles into commercial real estate.
But let's put that aside for a moment. Adversity most often creates opportunity. People and companies sell for any number of reasons -- death in the family, retirement, just cashing out, moving up to better properties, have used up depreciation and want a new property where cash recovery will start over, planned 1031 exchange, etc.
Buying "right" is the key. Moving out of stocks or moving under performing IRA or 401(k) money into real estate is likely a smart move at this time. But thinking that because Bill Gates or Google put lots of electronic gizmos at your fingertips and that you can go it alone . . . well, you can. But remember what I said about the folks from 20 and 30 years ago? Same potential for disaster. Only it might be worse because of a false sense of security that all the software tools available make it idiot proof to buy an investment property. There are far more pitfalls than you can imagine.
Here's one way to look at this discussion. I have told many people that I think Quicken is an incredible tool for accounting. But does using Quicken make me an accountant? No. So why would I try to do accounting on my own? Too many risks, for one.
So why do so many people feel they are at risk in the stock market, but then take the risk of buying "wrong" by pretending they have all the skills of a seasoned real estate agent? Not all, but many real estate agents will represent themselves in transactions, and that is because they understand the nuance, the negotiation, and the marketplace. Smart residential agents use experienced commercial agents to handle the former's investment purchases and sales.
But for regular folks, the potential for harm is astronomical. There are horror stories by the thousands of many who invested in far-off exotic locales, like Florida, because a neighbor did it. Did it themselves, they add. And now they are hurting. They are among the many who bought in because they didn't know what was happening with the market, bought in too high, and now are waiting for their bailout (don't get me started on that) if they happened to buy a house to use as a rental. Not all will be bailed out.
Bottom line. Find an agent who understands investment properties. Not sure how to start? Contact me and I will refer you to someone. My expertise is in Ohio. Not elsewhere, and I would not pretend to try to represent clients in other parts of the nation, but I am hooked into a network of smart, reliable people who can get the job done.
There are investment opportunities everywhere. Your comfort level is a key factor, but then there is always professional management who can take on a project and send you mailbox money once a quarter so you never have to worry about your investment. If you are looking at the millions of single family homes available as potential investment opportunities, the INCREDIBLE period of opportunity for investment at a rock-bottom price may only last another year.
Regardless of whether you are looking at an office building, a multifamily complex, or even a duplex or a couple of houses for rentals, I urge you not to blow it by trying to take on the task of buying an investment property on your own.
Please, please PLEASE do yourself a favor . . . Get someone who knows what they are doing to go to war on your behalf.
Saturday, November 1, 2008
I can't tell you how many times in putting together a deal that the seller has been asked whether they would, if the property buyer is financially strong enough, consider providing a second mortgage to help make the deal happen. The initial response is, "no." But they don't realize that note has value, and can be sold down the line to another investor who wants income.
The most fundamental job of the real estate note broker is to introduce the seller and buyer to each other. But not always. Often, a commercial real estate agent knows of investors who want to sell a note. In most cases, note brokers charge an introduction fee. One of the greatest advantages of real estate note brokers is that they provide and process all the paperwork required for a smooth transaction. In addition, real estate note brokers charge a small fee for doing the paperwork for you.
So for both investors and property sellers who have been waffling about whether to carry a second mortgage to make a deal happen, consider that there is a vibrant and healthy industry putting together buyers and sellers of notes.
Wednesday, October 8, 2008
Markets are still jittery, and only time will tell if this effort helps ease uncertainty and fear.
In the meantime, Opinio Juris has a stellar analysis of the global financial problem. What started as an American problem is now worldwide. It is a no-holes-barred look at how it started, where it is going, and what may be around the corner.
A must read.
Tuesday, October 7, 2008
And guess what, some guy will be sitting across the table from people thinking about retirement down the road and telling them . . . "buy stocks, they do great!" He will call himself an investment adviser, but in reality he will be a stockbroker. With only one investment to peddle.
Have you ever heard the term "sheeple?"
I will say it just one more time. Commercial/investment real estate makes money, it makes money reliably. And there has never been a better time to jump in. The people who are getting out are those who are trading up, or who are so over-leveraged in the stock market they need to raise cash fast. And are liquidating their real estate. In hindsight, I would be if you asked every one of them where they would rather be -- real estate or stocks -- they will say real estate every time.
Sigh . . .
Monday, October 6, 2008
The markets are cyclical. The bailout that passed the U.S. Congress, in my opinion, probably wasn't necessary from a fiscal standpoint (it was necessary from a public relations/feel-good standpoint for the world markets). But its done.
There is a lot of wealth being lost in the markets, sadly, but someone is buying stocks up. Warren Buffet bought a ton of General Electric stock. He hasn't been on a buying binge for a few years, but he buys when things are undervalued. Buy more if you can.
But if you want something more steady, something more reliable, seriously consider looking at investment real etate. There are a lot of great office, multifamily that make financial sense. A strong real estate agent who understands commercial/investment properties can show you on paper how they will benefit an investor each year, both in terms of income, as well as tax advantages. Single family homes as an investment can also work if you have an agent who understands "investment" properties -- not just understands "rental houses." There is far more to it than that...
But most of all. With the turmoil in the market, it is a time to be concerned. But don't panic. The credit markets, at least in the United States, were not allowed to police themselves. I wrote about this weeks ago, knowing it was politically incorrect, but lenders were forced to make loans they knew were dangerous. Risky. The PC term is "sub-prime." Then greed took over, and some lenders (some, not all) realized they could get away with fiscal murder and no one cared or would do anything about it. And they cleaned up. And the house of cards is now collapsing, and the problem that some in Congress and in this industry (myself in the latter category) have been warning for years would occur...did.
Markets were not allowed to correct themselves out of political considerations. It is correcting now.
Thursday, September 18, 2008
And yet people will persist and turn money over to stock brokers with promises that things are going to turn around soon. To people they don't know, to be managed by people they don't know
But people are "afraid" of investment real estate? Where apartment renters pay the owner a monthly fee to live in a few hundred square feet? Or businesses or retailers pay the building owner for the right to operate out of a few thousand square feet of the owners space?
Where is the risk in THAT? Why the irrational fear of investment real estate (no I don't mean houses, I mean commercial buildings and multifamily) when the real volatility, uncertainty and high risk is in the markets?
Sunday, September 7, 2008
They are being placed in a government conservatorship for the time being. A tough decision, but one that had to be made in the end. My concern is that people who gambled and used these mortgages to fund questionable investments will be bailed out. CASH ON CASH readers know my distaste for flipping houses and calling the process "an investment." Some estimates are that upwards of 50 percent of foreclosures are on houses in which the owner does not reside, but purchased for investment.
People who used these organizations for their mortgages and are living in homes they may lose due to the credit crunch, however, are people who deserve a helping hand -- in most cases.
In many cases, Fannie Mae and Freddie Mac made loans that . . . for lack of a better phrase, should never have been made. To risky, sub-prime home buyers who in most instances should never have been allowed "the dream" of home ownership. Because anyone could see what was coming. Many of us in the industry have been talking for more than three years about the events unfolding now.
Time will tell how this all sorts out.
Thursday, August 28, 2008
Listening to the news, one would think that the market is in the toilet and that a one-and-a-half percent passbook savings account is the way to go to keep your money safe. It is anything but that. Remember, it is the residential market that is having difficulties. People buying and selling homes in which to live. If you are a buyer, however, it is your market. Don't like the terms on this house? Pick another one down the street. You might get a better deal.
With investment real estate, it's all about the numbers. If the deal doesn't work financially, you go on to the next opportunity. And there are tons of opportunities today.
One of the possibilities is group investing. This is where a number of people go in together on a property. While there isn't a lot of risk in a good, income-producing property, when people buy something as a group the perception is that whatever risk there was has just diminished exponentially.
From a collague of mine who put this together, here are some of the excuses people will use to block their ability to succeed:
I don't have enough money; I don't have the know how; I don't know where to start; What if I buy the wrong property; What if my timing is wrong; What if prices go down; What if I make a mistake . . . people will think I'm foolish; What if I can't get a loan; What if this is a bad location??? And so on . . .
Here is why people buy interests in real estate:
To gain net spendable cash flow; To take advantage of favorable tax laws to real estate; To acquire equity through leverage; To hedge against inflation; To profit from appreciation; To put existing capital to work; To achieve overall higher investment yield; To avoid the management burden; To avoid signing a large mortgage not;e To purchase without a credit report or bank financing.
Get the picture?
With group investing, everyone puts in some cash at the beginning -- often from existing equity in their homes (dead equity), or self-directed IRAs. But not out of pocket, meaning not from the weekly or monthly checking account. The property can be paid for up front, or over a period of two to three years. Either way, cash flow begins immediately. Add in appreciation, cost recovery (depreciation) and avoidance of capital gains when the property is sold later on (utilizing an IRS 1031 tax deferred exchange) and you have the makings of a solid investment that will build wealth.
This way, the perceived risk is spread around.
Friday, August 15, 2008
For buyers and sellers alike the market remains strong, though there is some weakness appearing in retail properties. Those banks that are having problems have lumped their residential development lending packages in with their commercial loan programs. Which give a very skewed view of the market.
Lenders agree while there is some slight weakening, there has been no significant or a concerning amount of tangible deterioration on the part of custumers. Cash flows are still there andmost lenders have few concerns. Why? Because income producing properties produce just that -- income.
That is in contract to single family homes used as our primary residences. They aren't the same as income properties, unless someone is being charged rent.
For the full story, click here.
Saturday, August 2, 2008
This post today is not about politics, and my choice or where I lean, but more about the politics of politics, and where big money donors come from -- and more importantly, what motivates them (and to the contrary, what scares the crap out of them).
I read a piece earlier this week that asked why some of the most wealthy people in this nation are writing big donation checks to Sen. Obama's campaign, especially if his proposals are going to affect them the most.
Therein lies the fallacy.
His proposals will not affect the most wealthy, even though his campaign is pushing that thought. The most wealthy in this nation hold investment real estate. And they use 1031 tax-deferred exchanges to avoid capital gains. You cannot do that with stocks and bonds, nor jewelry, nor precious metals, etc. So the proposals to increase taxes on capital gains and increase income taxes means little, even though it sounds powerful to people who don't understand the tax system, and have a chip on their shoulder when it comes to people who are more well off.
Now, if the proposal from ANY candidate were to tax "assets," . . . . those donations would dry up and look like the desert in the U.S. southwest. Because people who use real estate to build wealth are working to avoid paying income taxes. And anyone can do it. You buy a property, let it appreciate for a few years, and continue to pay down the mortgage. As your equity grows, you can refinance the property, essentially making a loan to yourself that you never have to pay back. It is not taxable, because it is equity from your property -- not income. And you don't have to pay it back because your tenants make the payments for you with their monthly checks they send.
Most Americans rely on their income. But few jump into investment real estate -- despite the ease of entry -- because of irrational fear or belief by the media that the real estate market is upside down. The residential side (for a home in which to live) is hurting. But the investment side is humming right along.
Food for thought.
Wednesday, July 30, 2008
A handful are Photo Shopped -- contrived, if you will, just to be sillier than usual. But the vast majority are REAL, and some of the worst examples of photos being used to "promote" residential property.
As a real estate agent, I look at some of these and wonder . . . "WHAT WERE THEY THINKING???"
I throw this out mostly for humor. Just because . . .
What do YOU think??????
hat-tip to Lucy
Tuesday, July 22, 2008
Granted, predicting the outcome of a coin flip is a 50-50 proposition. But General Motors and Ford have been in dire financial straits for several years. Now, financial analysts are predicting the two companies could be bankrupt within five years.
I would like to see this analysis restated a few months after the presidential election in November. The economy generally improves after a presidential election. The key is going to be oil prices, not the overall general economy.
Now why do I bring all this up? Because there are so many people who fear commercial/investment real estate, but seem content with their Ford and GM pension funds, if they are current or former employees, or shareholder investments. I am all in favor of supporting my employer if there is stock to be owned, but to keep all your eggs in one basket is a big risk.
Also, money in these pension funds, now held by corporations on shaky financial ground, often are sitting in self-directed IRAs. And the IRAs, at the direction of the individual investor, are invested in the corporate stock. These same funds can be invested in income-producing real estate complete with a plethora of tax advantages.
If people will keep an open mind. Bottom line: Now is not the time to be invested in American automobile stocks, IMHO. It is a buyers market for certain types of real estate, especially for first-time investors. THAT is where people should be moving money. It has nowhere to go but up.
A question for the day: How many times have you been approached to purchase real estate as an investment? No, I don't mean someone trying to sell you tapes or DVDs in the middle of the night, but someone who actually sat across from you and explained Cash on Cash returns, depreciation, cost segregation, and more.
Here's another question (perhaps this should be "questions of the day"): If the concept of investment in real estate makes people so nervous, why do many of these same people blindly turn their hard-earned savings over to people they do not know, working far off in offices they have never seen, in a hope that the funds will grow? Isn't that a bigger risk?
It was pointed out in a recent meeting that despite insurance firms and giant investment houses success at selling their products, managing their clients' money doesn't always go so well. One gentlemen whom I know watched his pension fund value drop in a single calendar year. Oh, the broker was trading, but the only person getting any money was the brokerage in the fees that were charged each time a trade took place. The pension fund holder saw his value drop.
And what's more? Why are giant investment houses like Merrill Lynch and others posting billion dollar losses? They are the first to be paid. They take the fees. Last week, Merrill Lynch booked its fourth-straight quarterly loss, this time losing nearly $5 billion, as the nation's largest brokerage was forced to once again take massive writedowns. Why?
"Merrill said it lost $4.9 billion overall. On a continuing operations basis, it lost $4.6 billion, or $4.95 a share, down from a profit of $2.01 billion, or $2.24 a share a year ago. Analysts polled by Thomson Reuters were expecting the company to report a loss of just over $1.8 billion, or $1.91 a share on this basis.
"The company has now lost more than $19.2 billion in the past twelve months . . ."
Because even though people say the thought of real estate investment makes them nervous, they blindly turn their money over to people they do not know in the hope that it will grow. And it has not been growing.
But when you invest in real estate, your initial entry can be large or small. It does not have to be in a Class A office building. Further, each time you receive a rent check from a resident (in the case of residential properties), you are getting an amount equal to approximately one-fourth of that individual's income for the month. People pay you, so you can pay your bills. Rent checks from office or industrial tenants are strong, also.
It is less risky than stocks these days. In fact, the stock market is so volatile that many people have moved holdings into real estate, gold and other metals. But real estate not only gives you appreciation (added value) over time, it also provides you with monthly income, tax deductions for your expenses to operate the property, depreciation, and more.
And as a buddy reminded me this morning, changing market conditions dictate you change with the market. There is still this mindset that people want to flip. It is these bloody TV shows that perpetuate the myth, THE MYTH that flipping houses is lucrative. You may as well walk out into the middle of a Las Vegas street, pull all your cash out of your pocket and set fire to it. Flipping is a dumb move at any time, IMHO. You will get a little cash doing that.
But to build wealth, you hold real estate. And today everyone is buying single family homes ias fast as they can. It is a buyers' market. Everything is negotiable. Holding real estate for income today, and future appreciation is far smarter. The value builds. As your equity increases, your net income grows also. And then there are the advantages of the 1031 tax-deferred exchange, which I have written on ad infinitum. You indefinitely defer any capital gains taxes on the increase in value in your investment.
Can you do that with shares in a company?
The bottom line is that there isn't a smarter approach right now than investment real estate. Too many people say "I wish I could be doing that." You can't do it if you don't find a way to jump in. You can earn extra cash by working extra hours, or taking a second job. Building wealth is about sitting back and having other people share with you the earnings they work hard for.
Let others work hard. Let them pay you for a place to live or work. Its far more simple than most people realize. So then there should be a third question of day, don't you think? It would be . . .
. . . How can an individual build wealth without taking a second job? Asked and answered. See above.
Sunday, June 29, 2008
Presumptive presidential nominee (for the democrats) Sen. Barack Obama, has proposed significant increases in the capital gains tax. Specifically, he would bump the tax 20-28 percent on people with incomes over $250,000. He has already said he plans to increase income taxes on higher income earners, but this discussion is about "capital gains."
This is a spike on whatever capital gains you receive in a given year. It could be on stocks, bonds, or whatever. Even the sale of real estate, though if you work with an experienced real estate investment adviser, these proposals should not affect you.
My personal belief is that if Mr. Obama wants to increase revenue, he should decrease the capital gains tax rate, not increase it. He disagrees, suggesting that rich people had no problem with a 28 percent rate when Bill Clinton was in the White House. Actually, he is wrong. And "rich people" is not defined as "the working poor" but most everyone else these days when you look at demographers, incomes and tax rates. But I digress.
There were complaints about capital gains taxes under Bill Clinton. And when he finally lowered it from 28 percent, under ever-increasing pressure from the republican-dominated Congress in 1997, investment capital tripled. Capital increased, and so did revenue to the government.
CNN Money reports Sen. Obama's proposal this way:
"Barack Obama has made one part of his plan for the capital gains tax perfectly clear: He wants to raise the rate above 15% for high-income investors.Okay, I'm not going to suggest whom you vote for. I do not do that in this forum.
"But to what level: 20%? 23%? 27%? All Obama has said is that it would be at least 20% and less than 28%.
"The choice the presumptive Democratic nominee for president makes will matter to investors and to federal coffers. It's one of the many crucial tax details he and his advisers have yet to settle as they campaign against Republican rival John McCain.
"One reason Obama says he wants to raise the rate is to establish more fairness in the tax system. A low rate directly benefits high-income taxpayers the most since they hold more taxable investments than everyone else."
SO WHAT DOES THIS ALL MEAN????
As an investor, or even as an aspiring investor, there is a way to defer capital gains altogether, indefinitely, whether you have a $75,000 annual income or a $1 million or more annual income. It is NOT a loophole, it is not a trick, it is not a fly-by-night accounting scam from a book written by people who are now in prison for practicing what they preach.
It's called investment real estate. Which I hope is why you are reading this blog. Its not a flip, where you get a chunk of change for profit (then have to pay taxes on it), and you don't have to own a giant apartment complex or pieces of downtown Cleveland or Atlanta.
When you take advantage of rule 1031 of the Internal Revenue Service Code, you have done something for yourself, your children and your grandchildren. An IRS 1031 tax-deferred exchange enables you to exchange one like/kind property for another. As you move up in value, as long as you indicate it is part of a 1031 exchange, you pay no capital gains tax.
Not just in theory, but in reality, investors will take a $20,000 initial investment (leverating the rest through bank loan) and put it in some piece of property. Perhaps it is 20 percent down on a $200,000 twin single. After five years, they put it up for sale. During that time their equity in the property has risen above the $20,000, plus the property has appreciated. Concurrent with the marketing of the property, the investor is looking for a replacement property and finds it in a 12-unit apartment building for $600,000. The sale is made, the exchange is announced to the IRS, and the equity is now moved into the larger property.
Another five years passes, the investor purchases a seven suite office building for 1.3 million. The apartment building sells for $800,000 or better due to some improvements made on the structure. During that time the investor's equity in the 12-unit apartment building rose as she paid down her debt.
In a little over 10 years, the initial $20,000 has parlayed itself into a $1.2 million investment portfolio. And during that time, not a dime in capital gains taxes was paid because the investor utilized IRS Code 1031.
If you want to take advantage of this opportunities -- carved into the tax code since the 1920s (it is set in stone and isn't going anywhere) -- BE SURE that you are using a real estate investment adviser who understands investment real estate. Who understands before-tax and after-tax income, who understands tax-deferred exchanges.
But most of all, understand that people who dabble in real estate lose tens of thousands of dollars every year and don't even know it. They think their flip made them a nice chunk of change, but in reality had they held the property for a while, they would have been building wealth instead of putting a little bit more cash in their pocket for the short term.
Sen. Obama and others have played with capital gains taxes for decades. But no one tries to touch tax-deferred exchanges.
Why? Because the investor class in this nation utilize it every day. But you don't have to be "ultra wealthy" (whatever that is) to exploit this rule yourself. It is there for everyone to use.
And if you don't utilize tax deferred exchanges, you really can't call yourself an investor. You're just playing in a minefield.
Tuesday, May 27, 2008
International investors -- from pretty much all over the globe -- are visiting the U.S. and using the impotence of our weakened dollar to pick up solid investments. The Irish have been buying up apartments and townhomes all over Manhattan for more than a year now. This week, USA Today reports that foreign buyers are now coming in and buying single family homes to hold for investment.
I have received calls and emails from at least a half-dozen investors looking for property in Central Ohio and the Midwest, areas generally considered more economically stable than much of the rest of the United States. Unfortunately, my language skills include only a smattering of Spanish. As a native English speaker, my inquiries have come from buyers in Australia, Britain, and from English speakers from France and Spain.
The bottom line is that this is the time to buy. And hold. NO FLIPPING!
Here is an excerpt from the USA Today story:
"With these prices, you can't say no," says Monique Burger of Belgium, who's buying a Miami Beach vacation condo for $270,000. "With the low dollar against the euro, it helps. And the low housing prices made us want to buy."
I'm not surprised. Rents are strong in many areas of the nation, though there has been some softening as many more homes that people cannot sell are being listed for lease, or into rent-to-buy scenarios.
Once things turnaround, investors will have both rents, depreciation and expence deductions and appreciation all putting cash in their pockets -- courtesy of their renters.
Wednesday, May 21, 2008
But even so, the Fed may be reluctant to cut interest rates any further than it already has, the minutes from its last meeting show. (The minutes were also released Wednesday.) The Fed lowered its economic growth forecast for the year. At the same time, it raised its projections for inflation and unemployment. The combination of slowing growth and rising prices created a difficult situation that made the Fed's latest decision to cut rates on April 30 a "close call."
So with that said, remember what I have mentioned in earlier posts about inflation being a real estate investor's friend. Inflation raises everything, including rents. Keep that in mind.
Monday, May 19, 2008
People who don't know what they're talking about, that's who!
In southwest Florida (a place I love), where homebuilders have pulled up stakes or are navigating some pretty rough financial seas, there is trouble. But one person's -- or business' -- misfortune is another organization's opportunity.
WCI Communities Inc., based in Bonita Springs, Fla., has agreed to sell its high-end, Italian-inspired Tuscany Reserve community in a multimillion-dollar deal. After several other deals fell through, says the Naples Daily News, WCI closed on a sale Thursday to a group of European and Middle Eastern investors.
The sale price was not disclosed. Observers pegged it at about $65 million.
The market will come back and the investor group will be poised to make a killing in a decade. So I'm sure you're saying, "oh right, we're talking a giant project, what does that have to do with me?" The reality is, if you have any kind of strength financially, NOW is the time to pounce and pick up property. And not just the first project you run into. Investors have a wide variety of choices. If one doesn't pan out, or the numbers don't work, move on to the next one. Something WILL work.
Unlike residential real estate, where people are emotionally attached to the home or structure they purchase, commercial/investment real estate is all about the numbers. The math either works, or it doesn't. There are residential opportunities for investors, as well. To hold, not to flip. I have already covered that issue far more than I should, so I'll stop there. But good homes can be purchased at good values (not just fair values, but with good deals). Hold them for investment, rent them out for income, take advantage of the many tax opportunities, and you have a winning combination.
So while the WCI transaction is larger than a lot of people could ever dream of dealing with, it is indicative that transactions are happening, and for investors -- large and small -- there is a ton of opportunity.
Monday, May 12, 2008
Well, I'm not the only one. Dian Hymer, a columnist for Inman News, says the same thing. That is, she's saying don't buy to flip in the current market. Here is an excerpt:
"Short-term investing paid off for many investors a few years ago. In most cases, this strategy should be avoided today. Although the home-sale market is localized, generally the current housing market is soft and is expected to take a year or more to recover. You don't want to be caught having to sell in a year or two when the value of your house might be less than or equal to what you paid for it. After taking into account the costs of sale, you could find yourself selling at a loss."
True, short-term buys and sells did generate some cash. And it was enough to spawn a raft of questionable television shows showing the "benefits" of flipping. But I would hardly call flips "investing." It is speculating -- pure and simple. Commodity traders don't invest; they hedge and they speculate. Buying houses to flip is no different.
Still, there is money to be made -- serious money -- buy buying houses and holding them for investment. Rent them out, take advantage of a wealth of tax writeoffs (expenses and depreciation), plus have income. Work the numbers with someone who understands investment real estate, look at the pros and cons and pick your investment carefully. It's not like there aren't a few possibilities out there. Work it right and the income will cover the note. The expense write-offs and depreciation is gravy. And as the market recovers, appreciation is the icing on the cake. It is truly a buyers' -- an investors' -- market.
Savvy investors do not flip. They buy to hold. And they let their residents (tenants) pay what is owed to the bank.
Remember, people are perfectly willing to help you pay your bills -- if you let them.
Thursday, May 8, 2008
So what can you do? Well, of course you know my answer. Invest in investment grade real estate. Not houses to flip. But houses to hold and rent. Or apartments. Or offices. Let others pay your bills for you. Let others pay your mortgage for you.
Owning real estate is a hedge against inflation. It won't stop it. But in fact, you'll be carried along by it. Values for property over time go up. Rents go up. We are seeing it now in multifamily and distressed single family homes. Both of which are being snapped up by experienced investors. Because people can't afford to buy, or keep their home, they are being forced to rent. Which puts pressure on rental residential properties -- whether a single house, or a twin-single, or four-family, or large apartment complex.
Something to think about.
Sunday, April 13, 2008
There was some hesitation, but it has turned out to be a match made in heaven. Little Bear has a fantastic conference facility, part of which we are using for our meetings each Thursday morning, a fitness club, and along with a par-3 golf course is the centerpiece of a wonderful single family and condominium development project.
Bill thanks for the offer to try out Little Bear. To Tony Yacoub, Mike Lane and Randall Jackson, thanks for twisting my arm to come out and see the facility. And thanks to all the members of CREE who have been so supportive of this move.
If you want to take a look at the place yourself, here is a link to the Little Bear community.
Tuesday, April 1, 2008
The city's famed Bellvue Hospital, bilt in 1931, long a place for mental patients and criminals with severe mental problems, may soon be developed into an upscale hotel. Crazy idea? Sorry, bad humor there. Still, a hotel was not the first suggestion, just the one that makes most sense. Actually, the initial development plan was for condos.
"There are long corridors, and the rooms aren't very big," she said.
Even though officials expect the hotel and convention center would be marketed toward medical professionals and families of patients at nearby hospitals, it would be up to developers to deal with the building's sordid past.
"Not many hotels can claim Norman Mailer, Edie Sedgwick and Charlie Parker all spent the night, but the psych ward housed fewer sax players than ax murderers, said Dr. Frederick Covan, who for 14 years was its chief psychologist."
Read the story on development possibilites here.
Thursday, March 20, 2008
Particularly since I saw the latest "you are slowing down the wheels of progress if you use cash or write checks" commercials pushing Visa cards.
Well, I came close to duct-taping my head last night when I saw ANOTHER commercial I had been warned about by some colleagues in a networking group I belong to. Knowing my dislike of TV ads promoting irresponsible financial behavior (my words), they knew I'd be riled up by the latest ad from a credit card company/giant bank whom I will not name. Trust me, you'll know it the next time you see the television advertisement.
In the spot, a wife or girlfriend tells her male significant other "well, I guess it's time to get a new TV." He dutifully (giddily, truth be told) heads to the local big box electronics store where he is introduced to a plethora of flat panels, flat screens, big screens, BIG BIG BIG possibilities. And as he reclines in a luxurious plush leather recliner (reminiscent of my own "Black Beauty" recliner at home), he quickly pulls out his mobile cellular/internet/mp3/backscratching device and rapidly taps into his charge account to see how much he can spend.
Now notice, he is no longer shopping to see what he needs. He is not shopping based on a budget. HE IS SHOPPING BASED ON HOW MUCH CREDIT HE HAS LEFT ON HIS CHARGE ACCOUNT.
(insert scream here)
Folks, this is what I'm talking about. Kids and even adults are being trained to just "spend what you have," instead of working from a budget. It's no wonder I have so many people who realize they should have gotten into real estate long ago, and could be quite comfortable now, but they are in non-productive debt up to their eyeballs. And they gladly pile it on.
I'll get off the soapbox now. But for everyone who says they have trouble putting money aside, in order to purchase something for a long-term investment, I'll show you some item they bought (but really didn't need) because they had a little extra credit they could use. As for the TV couple, yes they needed a TV. But we are led to believe that he picked out the biggest and best.
Did he need the biggest and best? Probably not. But the credit card company made it so very easy for him to spend far more than he probably needed. A giant flat panel screen that will make him happy for a while, until he gets his monthly credit card statement.
But then, that's the credit game.
Thus endeth the lesson.
Monday, March 17, 2008
But that's not what I want to write about today.
I picked up a nugget from colleague Furman Tinon last week that I wanted to pass along. We were talking at our weekly Columbus Real Estate Exchangors (CREE) meeting and the subject of health insurance came up. As people's premiums skyrocket, for short term medical needs or longer-term catastrophic healthcare requirements, healthcare is striking fear into the hearts of many. As if gasoline prices didn't already do that!
First off, a warning; This will make some brains explode, particularly those people who are urging on government-run, mandatory universal health care . . . Now, with that said:
One benefit to owning investment real estate is that it can be an adjunct to your existing health care insurance. Now I'm not saying DO THIS. I am suggesting it as an alternative, or as a supplement. But consider the following:
In today's market, there are nice homes in nice neighborhoods that can be purchased at a discount. They will appreciate back to where they should be and beyond over the next several years. Remember, investment real estate is NOT flipping. It is holding income-producing property for the long term -- for appreciation, income and the huge tax advantages, both annually and when you trade up through a 1031 tax-deferred exchange.
Additionally, investment real estate is not your house (unless you are charging your kids rent). Consider getting control of (purchasing) two, three or even four nice homes. You don't have to do it all at once. You can do it over time, and trust me, unfortunately home prices look to stay depressed for a couple years anyay. Rent them out. You don't have to have high equity in the homes, just control over them. How? Look at your insurance expenditures over the past several years and get an idea of what you pay out each year. If you applied the money you spend on premiums, co-pays, and policy-holder obligation toward paying down the mortgage more quickly, your investment real estate equity jumps that much faster.
And by building equity more quickly, you are building wealth quickly.
If you control the homes, you can re-finance and take money out to take care of your healthcare needs. Surgery coming up? Expecting a big out-of-pocket expenditure? Pull money out of your investment property.
It is a tax-free loan to yourself.
I ran it by a mortgage guy I trust, and his response was, "oh yea, that makes GREAT sense." And he wasn't looking at fees he could collect; he was looking at the cost/benefit of this approach to healthcare. The same response (generally) came from a tax attorney and a CPA whom I consulted. Soooo . . .
Add your name to the long list of uninsured in this nation! And quite possibly, be far more secure for it. Just something to chew on on a Monday.
Tuesday, February 26, 2008
Occasionally, some of these same people are planning to relocate in the same area where they currently live. It might be moving up, or downsizing. A thought to the old "killing two birds with one stone" phrase is to purchase the second residential property, and convert the first residential property to an investment property.
No financial analysis as to the merits of an investment purchase is necessary because the owner already owns and even better, knows how the property has been maintained.
All that is left is a financial analysis of the area to determine market rents, advertise for and locate a new resident (I really dislike the term "tenant" in residential investment management) and determine whether the owner can withdraw some equity from the property to help with purchase of the "replacement" residence.
Monday, February 25, 2008
The piece also gives a lesson on how reducing interest rates only reduces mortgage rates so far. At some point they begin to rise. And fuel inflation.
But then, inflation is an investment property owners best friend. It is akin to having wealth forced upon you, as one of my colleagues likes to say.
Read the full report on interest rates at CNN Money.
Thursday, February 21, 2008
Here's a thought. Have you ever thought about the fact that the government taxes only income? What do the feds NOT tax? What about net worth? In fact, net worth is not taxed -- a reason why so many independently wealthy people (not the dripping wealth of Donald Trump, but the tens of thousands of "Buick Millionaires" who can be found throughout the U.S.) invest in commercial real estate.
Think about it. Your investment is building, and every five years or so you trade up to a larger property. During this time your property will have appreciated in value, you will have had the use of someone elses money (their monthly rent) to pay the mortgage on your investment, and when you buy something else, you can utilize a 1031 tax-deferred exchange and indefinitely defer payment of any capital gains taxes. The government taxes nothing, except your income from rents. But the "cost" of those taxes to you is offset through depreciation (what investment specialists like myself refer to as "cost recovery."
You don't have to trade just one property either. As your equity grows, you can pull money out of one investment, and use it to leverage the purchase of a second or third property. The portfolio builds, the incomes build, and with outside management at a nominal fee, you have "Mailbox Money" coming in for the rest of your life.
Building wealth does not have to be complicated. Using Commercial/investment real estate to build wealth is a means to take advantage of that whole "net-worth vs. income" tax dilemma.
Wednesday, February 20, 2008
A wraparound mortgage is a mortgage that includes in its balance -- an underlying mortgage. Rather than having distinct and separate first and second mortgages, a wraparound mortgage includes both. For example, you might have an existing first mortgage of $100,000 at 6 percent interest. A second mortgage can be arranged for $50,000 at 10 percent interest. Instead of getting that second mortgage, the borrower arranges a wraparound for $150,000 at 8 percent.
The first mortgage of $100,000 stays intact. The borrower pays the wraparound lender one payment on the $150,000 wraparound, and the wraparound lender remits the payment on the first mortgage to the first mortgage lender.
Monday, February 18, 2008
Nearly 100 brokers and agents from eight states are in town. Much networking ahead. And somehow I've got to shoehorn in a quick road trip down to Hocking County Tuesday afternoon to introduce a client there to some auctioneers. As I mentioned, posting will be light to say the least.
Friday, February 15, 2008
He also noted that the Fed may be looking at another interest rate cut in the near future.
Now, tell me again why people want to invest in the stock market?
Wednesday, February 13, 2008
The National Association of Realtors sent a letter to the full Senate noting that the proposal has the effect of depriving many farmers of any opporunity to use the exchange technique to reconfigure their holdings. The bill is now before a joint House-Senate conference committee to discuss differences in the language of legislation as passed by the two houses of Congress.
The change comes as a result of Congress' interest in "paying for" several incentives that would preserve wildlife habitats. This provision in the 2007 farm bill would not allow the owner of an improved investment property to use a tax-deferred exchange to acquire unimproved farm land. Similarly, owners of unimproved farm land could not exchange it for improved investment property. Unimproved agricultural real property is defined as land owned by aperson engaged in a farming business who receives specified commodity payments associated with the land.
I'll keep on eye on HR 2419 and let you know the results of the conference committee meetings.
Monday, February 11, 2008
"It is illegal, pursuant to the Ohio fair housing law, division (H) of section 4112.02 of the Revised Code, and the federal fair housing law, 42 U.S.C.A. 3601, to refuse to sell, transfer, assign, rent, lease, sublease, or finance housing accommodations, refuse to negotiate for the sale or rental of housing accommodations, or otherwise deny or make unavailable housing accommodations because of race, color, religion, sex, familial status as defined in section 4112.01 of the Revised Code, ancestry, military status as defined in that section, disability as defined in that section, or national origin or to so discriminate in advertising the sale or rental of housing, in the financing of housing, or in the provision of real estate brokerage services. It is also illegal, for profit, to induce or attempt to induce a person to sell or rent a dwelling by representations regarding the entry into the neighborhood of a person or persons belonging to one of the protected classes."
So if you own residential investment property in Ohio, no matter whether it is a rental house, double, 4-family or mega-multi-unit complex, you cannot discriminate against a potential or current renter because they are in the military. Actually, most owners don't do this. But an unscrupulous few have been giving many property owners a black eye with their antics.
Word is that complaints have been rolling in from around the nation from individuals who were being denied rental housing because they are on active duty, or reports alleged that property owners were refusing to accommodate former military personnel based on their type of discharge. With Gov. Strickland's signature, House Bill 372 becomes effective March 24, 2008, and provides benefits to members of the Armed Forces, one of those being that military status is now a protected class.
This bill is long overdue, IMHO.
Friday, February 8, 2008
Dan was a single guy living at home with his father and working in the family business. When he found out he was going to inherit a fortune when his sickly father died, he decided he needed a wife with which to share his fortune.
One evening at an investment meeting he spotted the most beautiful woman he had ever seen. Her natural beauty took his breath away.
"I may look like just any ordinary man," he said to her, "but in just a few years, my father will die, and I’ll inherit $20 million dollars."
Impressed, the woman obtained his business card and three days later . . .
. . .she became his step-mother.
WOMEN ARE SO MUCH BETTER AT ESTATE PLANNING
Tuesday, February 5, 2008
And it echoes what I have written in this journal for more than a year now . . . campus housing is virtually recession proof (those are my words). The Bankrate.com story puts it slightly differently, but the message is virtually the same:
". . . If you buy right, you may be purchasing a hedge of sorts against the rocky housing markets of the present and future . . ."
"Unlike some neighborhoods, where a disproportionate number of homes that are converted into rentals may signify an impending downturn, that's generally not a worry in college neighborhoods. You are placing yourself in a community where there is a constant churn of demand every semester."
BTW, it doesn't have to be a house. It can be a multifamily building --multiple units under one roof.
Thursday, January 31, 2008
"Faced with growing risks of recession, the Federal Reserve made its second deep interest-rate cut in a week and slashed a key short-term rate by a half-percentage point Wednesday. The federal funds rate - an overnight bank lending rate that affects how much interest consumers pay on credit cards, home equity lines of credit and auto loans - was cut to 3.0% from 3.5%. The rate had stood at 5.25% only four months ago."
Good news for all. This will bring more buyers into the market to help stabilize home prices. On the commercial/invsetment side of real estate, which remains strong, a lower interest rate is always a good thing.
Tuesday, January 29, 2008
ANYONE buying rural property these days - indeed, any property - needs to know from where, and for how much money, if applicable, that property gets potable water. While we don't face that problem right now in the Midwest, knowing your water sources on a property is critical. It impacts the useability of your land, and its value for both tax purposes and when you decide to sell or exchange it.
Friday, January 25, 2008
I read stories every day of companies with huge losses in a roller-coaster stock market; Ford already has noted that its pension plan is in trouble, and this week noted it posted a fourth-quarter net loss of $2.75 billion, or $1.30 per share, compared with a loss of $5.63 billion, or $2.98 per share, a year earlier.billion for the quarter. The company is also forecasting a net loss for the full year 2008 amid fears of a weakening U.S. economy. Now I think Ford builds a great automobile. One of my cars is a Ford. But looking at that, one has to be honest and ask, "why would I ever invest in Ford?"
I'm not trying to pick on Ford. It's just that their news this week makes a good example. As I have stated on earlier posts, when you invest in stocks, as a shareholder you are paid AFTER all the bills and everyone else is paid, assuming there is a profit.
When you compare the uncertainty of the stock market, and its average investor, with the stability and growth of an individual's portfolio when he or she owns four, or seven, or even 10 investment properties -- the difference is significant. If your 401k drops to nothing, or in a more realistic sense, stagnates and does not grow, or even declines in value, you've got a problem. But real estate doesn't go away. You still collect rent from your office tenants, or multifamily residents. And I haven't even discussed the voluminous tax advantages that are not available to corporate shareholders.
Commercial/investment real estate empowers you . . . it puts you in position to protect your wealth. And if there is inflation, you have wealth forced upon you. Not a bad place to be, actually.
Tuesday, January 22, 2008
Read more here.
Monday, January 21, 2008
Here is the story from Volume 3, Issue 4, just off the presses:
"Brent Greer, Sales Associate, closed a lease on a 27,430 square foot retail facility for a high-profile six-month museum program entitled 'BODIES: The Exhibition.'
"The exhibit, with special lighting and space requirements, has been seen by more than four million people around the world. This is its first appearance in Ohio. Greer identified retail space in a high traffic, 'high-energy' area within 10 days of being notified of the exhibit's need because an exhibit venue in another city had been unexpectedly rescheduled to a later date. Greer began working immediately and found a former CompUSA store in Easton Market retail center that hadn't come on the market yet.
"Negotiations took place with the retail center owners in Cleveland and with Greer and Premier getting approvals and identifying potential restrictions on other tenant leases regarding an exhibitor, as well as CompUSA. Ultimately the center owners agreed that the exhibit would be a huge draw for the Easton Market, otentially drawing 400,000+ visitors.
"Greer recommended a local architect and in two weeks the interior space of the site was converted to have the look and feel of the Smithsonian Institution. The BODIES exhibition has been a subject of some controversy but draws huge crowds wherever it is seen. The promoters spent $500,000+ in the Columbus are to market the high-profile exhibit.
"In addition to BODIES, Premier Exhibitions, based in Atlanta, Ga., also operates touring RMS TITANIC exhibitions, featuring artifacts raised from the sunken luxury liner, Titanic. Premier owns the salvage rights to the vessel."
The rest of the story goes on and on about my professional credentials and areas of specialty. Nevertheless, it was a nice surprise to find myself featured in the parent organization's national newsletter. It was an interesting project, and one that was intense in a very short period of time. Most interesting was the controversy leading up to getting the deal done for my clients, Premier Exhibitions. Specifically, I was receiving telephone calls from the head of the big science museum in town, COSI, begging me not to work with them because my work could have "devastating financial consequences" for our local museum. Seems they have a similar exhibit coming in later this year and felt Premier would upstage them.
That entire discussion is best left to the residents of Ohio, who can choose themselves which is the better exhibit. All I know is that I had never seen anything like BODIES before, and it was presented in an incredibly ethical, and educational manner. I enjoyed working with the team from Atlanta and hope to work with them again on another project elsewhere.
As for the national Prudential commercial newsletter editors choosing the details of my transaction to run as a story, when I know there are many to choose from, it's actually pretty cool.
To the editors -- thanks for the exposure!