IRS "Compliance Gaps" Includes Real Estate Investors

I've said it before, that the government views property owners like John Dillinger viewed banks.

Due to new Medicare laws, real estate investors would do well to qualify as real estate professionals. However, there is an exception for those who would qualify.

Read How Real Estate Investors Can Protect Themselves From the IRS to learn more about it.

And if I were local to Savannah I'd call Stephen Leonard over at Hancock Askew.


A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga

Low interest rates + multiple offers = bad time to buy

Everyone is howling about the low interest rates, even myself on occasion, as THE reason to buy property. "Buy now while rates are low!" It is the ticking clock method of persuasion.

However, if your market is particularly hot, and properties that fit your criteria are receiving multiple offers, then it might not be the best time to buy.

"What?" you may ask. "How can things not be on sale already since prices are so far off from 2007?"

Keep in mind that 2007 prices were hyper-inflated, nobody is predicting yearly future appreciation rates, and low interest rates don't justify a bidding war.

In many markets and in almost every sector, investors are trying to buy as much real estate (especially residential) as possible to either rent or flip. If you find yourself in a multiple offer situation on a property where other buyers are throwing cash around like a ticker tape parade, don't buy the property.

There are more foreclosures coming; the shadow inventory is huge. Don't let your emotions hijack your wallet in a bidding war for anything at any time. If you can't sell the property you intend to buy for $X within a week of purchase and get what you paid, you're probably going to pay too much.

A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga

The ups and downs of interest rates and what they mean for buyers

The following is an article submitted by Mortgage Advisor Steve Nimmer.

It seems like every week we hear news about fluctuating mortgage interest rates. They're up, they're down, they remain unchanged...it's a lot to digest. Educating buyers about how mortgage interest rates work and how changes in rates can affect their loans in process can prove invaluable.

Many factors can influence mortgage rates. The role of the investor, bond prices/yields, other market-driven and policy-driven rates, and lender competition all play a role in determining mortgage interest rates.

Investments
Mortgages are one of the many investment products on the market today that investors "purchase" to realize a profit. Investors, such as Fannie Mae and Freddie Mac, buy mortgage-backed securities, which compete with other investment products in the marketplace and are influenced by the current Treasury bond yields. Mortgage-backed securities also provide fixed coupon payments to investors similar to bonds, but carry more risk and often better returns.

Other Rates
In addition, many other types of interest rates affect mortgage rates. Rates on bonds and securities go up in order to attract investors and the prime and LIBOR rates go down in order to attract borrowers. The Federal Reserve also sets specific rates to ensure stability and balance in the economy, and while the Fed does not set specific targets for mortgage rates, it does indirectly end up influencing them because these rates tend to move in the same direction as other financial interest rates.

Lender Competition
Lenders also compete against each other, balancing what their investors want to buy against what a homebuyer is willing to pay – and what the competition is offering.

Contact me today for more information about interest rates.

Steve Nimmer
Coldwell Banker Mortgage

(912) 604-3834
NMLS #: 186680

A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga

Keys to understanding opportunities in real estate

By David Sherman | October 2, 2012 10:04 am as seen in http://www.pionline.com

Summary: The savvy commercial real estate investor knows that properties with stable, long term tenants that produce  reasonable (an amount determined by individual criteria) fetch top dollar. Other properties with slightly more risk (expiring leases, high maintenance, vacancy, refinancing needs, etc) are dirt cheap. The goal is to find the mispriced riskier properties, install new management and add significant value, and then sell as a safe investment for a nice profit. Investors are duplicating this process with properties from single family homes to skyscrapers.

Key Memorable Points:

Income is expensive, but bricks are cheap.

As traditional debt capital remains limited, new sources form.

A steady supply of overleveraged assets will continue to come to market.

Fundamentals have bottomed out in most major markets.

Mispriced risk creates attractive investment opportunities.

Read the full article at Keys to understanding opportunities in real estate

A. Joseph MarshallColdwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga

Investing In Real Estate As “Tenants In Common” in Georgia

Here's a good article by Donna S. Robinson written on 03 September 2012. She is a real estate investor and investing coach located in Atlanta, Ga.

Summary: Purchasing property as tenants in common is a way to own and enjoy a property with the freedom to sell your portion of the investment (based on total invested by group) without permission of the other investors.

Key Quotes:

An example Donna gives:

"For example, let’s say that you wish to purchase 100 acres of land, but you do not have enough cash of your own. However, you do have a couple of friends who would also like to invest. You and your friends agree to purchase the property. In addition, each of you will be investing a different amount of money.

The price of the 100 acres is $100,000. You will invest $25,000, your friend Bob will invest $25,000 but Paul will be investing $50,000. As tenants in common, you and Bob will each own a 25% undivided interest in the property and Paul will own a 50% undivided interest in the property.

An undivided interest means that you can’t pick out 25 acres of land and resell them as a separate piece of property, but you can sell your 25% interest to another buyer, and you won’t need Bob or Paul’s permission to do it. Each tenant in common can sell their entire interest in the deal, but the property remains intact. The new buyer simply becomes a tenant in common. In the title, each owners share of ownership is expressed as a percentage, so in our example the deed would actually state that you own a 25% interest, Bob owns a 25% interest, and Paul owns a 50% interest."

To pursue ownership as a tenant in common, I suggest you call TJ Hollis, with Lee, Black, Rouse and Hollis.

Read the full article at Investing In Real Estate As “Tenants In Common"

A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga

Should a Business Buy Its Own Building?

Summary: You should consider purchasing a property for your business if it means you still have a diversified portfolio. Purchasing a building and then working harder to pay it off means you've put all your assets into your business, which is unbalanced and not advised by most investment professionals.

Key Quotes:
Since [January], vacancy rates have dropped a little in most markets and rents have stabilized. However, very little new construction has been completed, and what has been built is almost all owner-occupied or build-to-suit. Almost no speculative real estate has been constructed this past year. Thus when the economy improves, rents will rise immediately. Normally developers see this coming and put up new buildings in anticipation of better conditions, but that isn’t happening.

That’s the argument for our small business owner buying his own building, but there’s another side to consider. This fellow has almost his entire net worth tied up in his company. Like many other entrepreneurs, he’s thinking about buying a building as a personal asset or through a separate company. Then his business would sign a long-term lease for the property.

Many business owners have succeeded with this approach, but there’s a large risk. This owner is thinking about retiring in a few years, selling his business at that time. Many small businesses are sold with seller financing, meaning he would get a portion of the price up front, and then the buyer would pay the rest of the purchase price from company earnings over the next few years. Now suppose that the buyer fails at running the business. The original owner gets a double whammy: he is not getting paid for his business, and his building just lost its only tenant. Ouch.

Read the full article at Should a Business Buy Its Own Building? by Bill Conerly, Contributor + Follow on Forbes

 

A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga

Someone Has Already Caught the Falling Knife as Smart Money Moves Into Commercial Real Estate

Posted by Michael Gerrity 11/23/11 8:20 AM EST
(MIAMI, FL) --
Summary: The most ideal time to buy commercial real estate investments appears to have passed. Smart money buys commercial real estate when property values are below replacement costs. 

Important segments: 
"Don't bet against real estate" was one of the themes at a recent Realtors Commercial Alliance (RCA) conference this past week at the Biltmore Resort in Miami, a day-long event sponsored by the Miami Association of Realtors that focused on the current conditions of the U.S. commercial real estate investment and development marketplace.

According to the keynote speaker, Dr. Randy Anderson, the Howard Phillips Eminent Scholar Chair and Professor of Real Estate at the University of Central Florida, "many real estate market segments have started to strengthen; meaning that someone has already caught the 'Falling Knife' and investors should now be taking a hard look at making real estate allocations."

Anderson showed long-term relative strength of investing in commercial real estate as part of a mixed asset portfolio.  Anderson noted that "the smart money has already started to move strategically into the commercial real estate space," and he stated that some of the current investment opportunities are "in places and products that may surprise you."

For the full article and a break down of four commercial property segments read: Someone Has Already Caught the Falling Knife as Smart Money Moves Into Commercial Real Estate, Says UCF Economist

 A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga

Why You Should Invest in Austin, TX & Charlotte, NC.

In this video, Rand discusses why you should invest in real estate in Austin, TX and Charlotte, NC. View the view  "Why You Should Invest in Austin "on YouTube.





A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga

A Quick Primer on Mortgage Discount Points

I’m working with a commercial investor who is weighing the loans he qualifies for. And typically by the time anyone asks me about loans they’re about ready to pull their hair out. This particular question concerned origination points. What are they? A point is a fee paid to the lender for working the loan. Typically you are charged one point for each percent of the loan. ($150,000 loan is 1.5 points which costs you $2,250.)

Let’s say my investor’s loan was a low $150,000 and he is considering two different loans. Both are for $150,000, and both are 30 year amortization.

DEAL #1 is 7.5% interest with 0 points for origination.

DEAL # 2 is 7% interest, but he wants two points to originate the loan.

       

What’s the ONE factor that will determine which loan is better? How long he plans to keep this loan! Here’s how he determines which deal is better…

1. Take the difference in monthly payments (principal and interest only) of EACH loan.

2. Multiply that amount by 12 months to get the annual amount of difference.

3. DIVIDE that amount into the $$ amount of points you pay to determine the number of years at which you recover the points paid up front. 

If the number of years is LESS than his anticipated time in the property, he’ll be better off paying the points and getting the lower rate.  If it’s higher than he plans to spend in the property, he should opt for the lower points.

I don’t have the space to show my work, but this is answer. The difference in monthly payments is $51 a month ($1049 - $998 = $51). $51 X 12 months is a savings on (approximate) interest of $612 per year. Total Cost Of Points divided by $612 is 6.13 years ($3,750/$612 = 6.13). 

My client (and you know who you are) needs to stay in the property for at least 6 years to recoup the cost of the origination points. If he wants to be there for only 5 years, the best bet is Deal # 1.

Are mortgage rates rising?

(Originally published October 2010)

YES!

The Fed's second round of Quantitative Easing (QE2) has pushed mortgage rates higher in the last 3 weeks. But why? Several reasons. As investors look ahead they see little reason for mortgage rates to decrease and four possible causes for them to increase.

These causes include stronger than expected economic data which could lead to stronger economic growth. Stronger growth decreases the need for additional Fed stimulus, and it generally leads to higher inflation.

Domestic and foreign opposition to QE2 means the Fed will most likely not expand the program, meaning that the Fed will face strong resistance to an expansion of the program. Investors had viewed the $600 billion figure as a first step which would likely be increased in the future. Stronger economic growth and opposition to quantitative easing reduce the likelihood that the program will be increased and possibly could cause the program to end early.

Printing an extra $600 billion weakened the value of the dollar relative to other currencies. When foreign investors sell US securities, they must convert the US dollars they receive into their own currency. If the value of the dollar falls, then the value of their US investment falls in relative terms to their own currency. As a result, foreign investors may reduce their purchases of US securities, including mortgage-backed securities (MBS), which would cause yields to increase. This fear of weaker foreign demand hurt mortgage rates.

China also announced a rate hike which requires yields to rise in other foreign markets to remain competitive.

The good news is that current inflation levels are low and the Consumer Price Index data released mid November shows annual core inflation at a record low in October.

In conclusion, we shouldn't be surprised that mortgage rates are rising; because they've been extremely low they are positioned to increase very quickly!

Thank you to Jeffery Grossman in SunTrust Mortgage and MBSQuoteline!