‘A whole lot and a whole not’ sums up the last few weeks here on the blog.

How long has it been?  Well, it has been one heck of a ride for the last few months.  I have been attending a few luncheons, a couple seminars, and a handful of meetings and they are all saying the same thing:

‘Cash-rich investors are sitting on their money waiting for commercial real estate to hit bottom.’

Once it does, the assumption is the investors will jump in with both feet.  This is what is called vulture investing.  You can read more about it HERE.

The belief is that there will be a dramatic tipping point sometime late this year or early next.  The assumption is that this ‘tipping point’ will start with the banks doing a mass liquidation of assets that are on their books.  This huge sell off will be a mountain of discounted assets in order to move the assets quickly.  This will led a domino effect that will dramatically pull values down even more.  I guess the real question for me is what is taking so long?   We are seeing a little bit of liquidation here and there but not what everyone was expecting.

Although there is some positive press that things are turning around.  Most experts don’t buy it.  What do you think?

When a question like this comes up, I start following the money.  The problem is the money is not going anywhere….hence…there is my answer.

Until next time…..rob

In simple terms, this process, executed with the help of a mediator, allows you to avoid paying capital gains tax (for now) when you sell a commercial property.  The catch?  You have to put your profits into the purchase of another (bigger) property within a certain period of time.

Want more details?  Read on!

How Can A 1031 Tax Deferred Exchange Work For You?

A tax deferred exchange is a simple method that a property owner employs in a property trade without having to pay the federal tax on the transaction. Generally in an ordinary sale transaction, the property owner is taxed on any gain he or she realizes by the sale of the property. But in exchange, this tax is deferred until some future time when the acquired property is sold. Authorized by the Section 1031 of the Internal Revenue Code, these tax rules are sometimes referred to as 1031 exchange rules. The transaction however must carefully meet the section 1031 rule set and must be structured in such a way that the transaction is in fact an exchange of one property for another and it is not a taxable property sale.

When you look at it, the tax deferred exchange is actually an investment strategy that people are often not aware of. One of the misconceptions on the 1031 exchange rules is that an exchange requires 2 parties who want each other’s properties. However, in reality though, such two-party swaps rarely occur. Today, this exchange can be accomplished by involving four principal parties that include the exchanger, the seller of the replacement property, the buyer of the relinquished property and an intermediary. These parties often do not even know each other and may be located in different states. Furthermore, the exchange properties do not have to close at the same time. As long as the 180-day deadline has not been met, the exchange is considered legal and thus tax-free.

You Need To Know And Understand The 1031 Tax Deferred Exchange Rules Before You Sell Your First Property

It is clear that 1031 exchange rules have the advantage of shielding the exchanger from incurring immediate tax liability. Upon the death of the taxpayer, the deferred tax is forgiven and the taxpayer’s estate never has to repay the ‘loan’. A tax deferred exchange nevertheless carries the disadvantage of additional fees for entering into the agreement. These costs could be attorney’s fees, accounting fees, intermediary and accommodation titleholder’s fees. The taxpayer is also not allowed to use the net proceeds from the property disposition other than in real property re-investment.

1031 exchange rules offer a taxpayer the benefits of tax deferment. However, this should not be the only reason to enter into a deferred exchange. Business decisions like the need to consolidate investments, increase cash flow, relocate a business investment, obtain greater real property appreciation and eliminate management problems should play the dominant role. When all of the above factors are considered, one may be in a better position to engage or disengage from a tax deferred exchange.

For More Information

If you need more information on 1031 Tax Exchangers, drop us a line and we will let you know who we recommend.  We can also help put you in touch with an agent if you are looking to sell or buy a property.

Just let us know how we can help – and best of luck with your first 1031 exchange!

Sitting in the audience not too long ago, I heard a speaker/guru that I respected very much say the stupidest thing.  I heard him say “….investing in the stock market is a dumb thing to do because there is so much risk.”  Granted he was selling his “silver bullet” program but….what a dumb thing to say.  I know so many people that have done so well in the stock market in good times and in bad that I know the stock market is a great place to invest…..I say what with caution…keep reading.

I have also heard people say that real estate is a bad investment.  When we all know people that have done well in real estate as well…whether the market is good or bad….again…I say that with caution….keep reading.

Of course there are horror stories for any investment vehicle…whether real etate, stocks, businesses, etc.  BUT….there is one very clear statement that makes all the sense in the world in whatever investment vehicle you are investing in:

“Know what the hell you are doing…understand what it is that you investing in.” – me

In other words, have a good understanding of how your investment vehicle works.  If you don’t understand it, don’t do it unless you are willing to lose.  Then…if you lose….don’t #$%@!$ about it.

What I am saying is a knowledgeable investor will understand the risk, do what he or she can to mitigate it and roll with the punches of the investment.  A savvy investor will do all this while taking advantage of the cycles that ALL INVESTMENTS go through.

Savvy investors know that losing money is the cost of doing business….but the key is making more than you lose.  The way great investors do this is by spending the time educating themselves, seeking advice from successful investors and professionals, and mitigating risk.

Investing with little or no knowledge of what you are doing is what I call “Vegas Style Investing.”

So…then next time someone on stage or TV tells you their opinion on investing….take it with a grain of salt.  Remember there are success stories with almost every type of investment vehicle as well as horror stories.  The key is to understand the investment and know what the heck you are doing.

Until next time…..rob

Today’s post is actually an interview I did with my friend Steve Maxwell from DealAnalysisGuru.com.  In the interview, Steve and I discuss the process of getting to a purchase agreement on a commercial deal.  In other words, explaining the process of getting a commercial real estate deal locked up under  a purchase contract.

In the interview, I answer questions regarding LOIs (Letter Of Intents) and purchase agreements.  The call is broken up into three segments.  The interview was conducted over the phonse so, the call gets dropped a couple times.  But none-the-less….there is some good information.  The links to the calls are provided below.

P.S.  Make sure you check out Steve’s site www.DealAnalysisGuru.com

Interview links on The Process of How to Get a Deal Under Contract:

1. Interview part 1
2. Interview part 2
3. Interview part 3

Until next time……rob

Fannie Mae Lending Criteria - this one is a slam dunk!

Greetings….

Two blog posts in one week…..just amazing!

Well…not really.

Anyway….

Got a great question from Steve in Colorado regarding lenders and lending criteria.  My friend Terry Painter from the Business Loan Store provided us an answer……

Rob,

I know some investors try to stay away from flat-roof apartment buildings (vs pitched).  In
general I’d prefer pitched but might consider flat especially if new roof or
other big benefit.  However I also heard (not sure if correct) that Fannie
Mae does not fund flat-roofed apartments.  If this is true this could make it a definite
typical “requirement”.  Any comments?

Also,  any comments on what lenders look for regarding unit mix % ratio (this is the % of one bedrooms, two bedrooms, studios, etc) to look out for (with desire for higher mix of two bedrooms vs. one)?

Steve,

Fannie Mae does fund Apartment complexes with flat roofs. But, we (Business Loan Store) are funding
several with flat roofs now.  If any roof has less than 5 years useful life left this will be a problem.   Without question flat roofs do not last anywhere near as long as pitched roofs and are more expensive to maintain.

As for unit mix, preferable unit mix is based on the sub market the property is located.
For example, if there are a lot of students, one bedrooms and studios are often  preferred. Otherwise in most locations, more 2 bedrooms are
preferred.  Usually one bedrooms and studios get the highest rent per SF.
So in locations that have very low vacancy, studios and one bedrooms could bring in the highest
income.

Terry Painter, President
Business Loan Store
104 Monterey Drive
Medford, OR  97504
Mortgage Banker

Office  541-326-0570
Fax     888-404-7089
Cell     541-840-3078

learn anything new?

Until next time…..rob