It can be scary to invest in anything during a recession. We all carry visions of the great depression and bread lines and people selling apples. The idea of putting your money into anything other than your mattress can be frightening for some. However, real estate should never be looked upon as an ordinary investment.

Real estate is one of the few investments that we actually use and need. Everyone needs a place to live and call home. And real estate has systematically and quantifiably proven to have risen in value over the decades

Mortgage rates have not been as low as they are today since the 1960s. This is an ideal time to invest in real estate and take advantage of those low interest rates as well as the attractively low prices on property in many areas around the country. Because there are so many more properties on the market than there are buyers, in other words supply outstrips demand, the price for property in most areas has fallen considerably. On top of that, there are people who have overextended themselves in the early part of the century and are now finding themselves facing foreclosure.

Now Is The Time To Buy And Buy Cheap.

Do not feel intimidated by a real estate agent who tells you that you are going to “insult” someone if you offer a low price for their property. The real estate agent wants you to spend as much as possible because their fiduciary responsibility is with the seller, and they get a commission based on the sales price. Use your head and take a look at the market. When you invest in real estate during a recession, consider the following:

Why Are They Selling?

If you’re purchasing from a builder/developer than why they are selling becomes less important. But if purchasing directly from the owner in a private sale, you can find out by simply asking the seller or your agent. If the property is in a state of disrepair, chances are that there are financial problems. Don’t be afraid to offer a significant amount less. If the owner is buying another home and needs to close on the first one soon, again don’t be afraid to offer less than their asking price.

How Long Has The Property Been On The Market?

A few years ago, a home that was on the market for several months was either priced too high or there was something significantly wrong with the property. Today, properties stay on the market for 90 days or more in many parts of the country due to the prevailing market conditions. Avoid making a lowball offer on a property that is fresh on the market unless you know it is going into foreclosure or just about to become foreclosed upon. However, feel free to make low offers on properties that have been on the market for a month or more. Those that have been on the market for over a year are owned by people who are willing to ride out the storm and will most likely not be sold for a low price.

Is The Property In Foreclosure?

If the property is bank owned, you should be prepared to offer a lot less than the asking price. Don’t allow a real estate agent to sway you when it comes to making an offer. If they say, “I do not want to present such a low offer,” tell them that you are prepared to find someone else who will. There are many real estate agents looking for a sale, especially in the today’s market. If the property is in foreclosure, offer at least 20 percent below the lender’s asking price.

Contrary to what you may have heard, this is the best time to buy a property. Always do your homework and don’t be afraid to invest in real estate during a recession.

http://www.noradarealestate.com/Real-Estate-Articles/Index.asp

-B
- www.investorschoiceindy.com 

-B
IC Indy Guru

Tax Savvy Investing - 1031 Tax-Deferred Exchanges
by David Whisnant

A tax deferred exchange allows us to sell a piece of investment (i.e. rental), trade or business property, buy a new property with the gain or profit from the sale, and not owe taxes on the sale immediately. If you eventually sell the new piece of property, you would owe taxes at that time. Generally, all gains and losses on sales of real estate are taxable, but an exception lies where the property sold is traded or exchanged for “like-kind” property. The new property is seen as a continuation of the original investment, so taxes are not due at the time of the sale.

Many people view tax deferred exchanges as being for huge corporations, or only for professional investors. I believe that everyone should take advantage of these where they can. Strategy — purchase a rental home below market value, rent it for a year, sell it, and buy two rental properties with your gain. Note that if you do this too many times, the IRS may take the view that you are not a long term investor, and disallow such exchanges. When you get ready to do a tax-deferred exchange, you will need the services of a qualified CPA or Attorney. This is a basic introduction only, and you should always get professional advice from someone who has all the details on your deal, since so much liability is at stake. In my course I list the company that I use for these real estate exchanges. They are a national company and can help you out wherever you are in the country. I have used them for several deferred exchanges, and they have been an excellent resource and extremely competent.

Let’s look at how one of these deals would work. Assume that you own a rental property that has gone up in value. You’d like to sell this property and then reinvest the proceeds into some other rental real estate. You can avoid the tax bill if you can find suitable property to exchange for. The difficulty of the tax deferred exchange is that the property you are going to purchase must be identified within a certain amount of time, and it must be closed within a certain amount of time after it is identified. Unfortunately, no extensions are possible.

Technical Note: You can identify more than one property as the replacement property. However, the maximum number of replacement properties that you may identify without regard to fair market value is three properties. You may identify any number of properties provided that the total value of these properties is not more than 200% of the value of the original property you are selling. Note that you don’t have to close on all the properties you identify. You can name several if you’re not sure what will close, or not close, but you have to observe the rules in this technical note in terms of the value of properties you identify. If at the end of the identification period you have identified more properties than you are allowed, you are generally treated as if no property was identified. This means that you pay taxes!

For multiple property transfers, the 45 day identification period and the 180 day exchange period are determined by the earliest date a property is transferred.

Remember that this article is to provide basic information only. If you are planning on doing a tax deferred exchange, you really need to speak with a professional that handles these transactions on a regular basis. Information here is subject to change by IRS regulations or statute, so be sure to use current information provided by your accountant or other professional when planning a strategy involving tax deferred exchanges.

Visit the discussion in our forum at http://www.investorschoiceindy.com/forum/general-discussion/defering-capital-gain-tax-t217/ ]]> http://www.investorschoiceindy.com/blog/2008/02/20/1031-exchange-like-property-exchange-indianapolis-investment-real-estate/feed/ http://www.investorschoiceindy.com/blog/2008/01/31/when-to-say-when-how-much-investment-property-rehab-is-enough/ http://www.investorschoiceindy.com/blog/2008/01/31/when-to-say-when-how-much-investment-property-rehab-is-enough/#comments Thu, 31 Jan 2008 20:39:48 +0000 Clayton http://www.investorschoiceindy.com/blog/2008/01/31/when-to-say-when-how-much-investment-property-rehab-is-enough/ An important component in pricing and marketing a property will be in looking at the market and your competition (ie. listing and sale comparables).  Most of the homes that I am putting out as investment deals are in areas that having one bathroom is common.  I would agree that having a second bathroom in a three or four bedroom house would be ideal.  However, it is not an “expected” feature in these areas.  Also, the expense is almost always probititive.  Appraisers like myself use the term “incurable”, meaning that the cost to make an improvement (ie. bathroom) costs more than the value you would get of the improvement.  As an example, it might cost $5,000 to add a bathroom.  If the market will only allow for an increase of value at $2,500 due to that bathroom addition, then the improvement is considered to be incurable.  If you were to spend the same $5,000, however, and receive at least $5,000 of market value, then the improvement would be considered curable.  In most cases, room additions will be incurable.  Having said that, I just went out to a property this past weekend with 4 bedrooms and only one bathroom.  The house has a perfect area for a second full bathroom.  The cost will be nominal because it will only involve a slight conversion of space.  In that situation, adding the bathroom is going to become part of the rehab plan.  Not every property will see that type of renovation though.  In fact, most of them won’t due to cost and more importantly the market expectations in those particular areas.

Join in the conversation at the Investors Choice Indy Forum

 Til Next Time…

“Because average mortgage rates have come down more than a quarter of a percentage point in the past two weeks, there has been a pickup in refinance activity as borrowers take advantage of the lower rates,” Nothaft said.

“For the first week of 2008, the Mortgage Bankers Association reported an increase in the refinance share of mortgage applications and the pace of overall applications, both at the highest levels in four weeks.”

article credit - MarketWatch

In addition, the Mortgage applications rose 32.2% last week

I invite everyone to goto our forum at WWW.INVESTORSCHOICEINDY.COM/FORUM to discuss their thoughts on this and other aspects of the Real Estate Marking in Indianapolis and other parts of the United States

-C

Stay tuned. 

The IC group has meetings every month to talk about various investing issues and typically include a featured guest speaker.  Normally those meetings are open only to Investor’s Choice “Preferred Investors” that have paid their membership dues.  However, I want to kick off 2008 with a bang.  As such, I want to personally invite any “non-members” to our January meeting that will take place next Wednesday the 9th.  The meeting is held in the Greenwood area and starts at 7pm.  This meeting will be our Kickoff to ‘08.  We are going to set plans and goals for each of our members and get prepared for the New Year.  In addition, we will have a guest speaker to talk about investment planning, both short and long term.  If you have an interest in attending this meeting, please reply to this message or e-mail me direct at brian@investorschoiceindy.com and I will give you more information.  I look forward to seeing everyone next week!  ’08 is going to ROCK!!!

To Our Success,

Brian
IC Indy Guru

I am honored to be with you today at your commencement from one of the finest universities in the world. I never graduated from college. Truth be told, this is the closest I’ve ever gotten to a college graduation. Today I want to tell you three stories from my life. That’s it. No big deal. Just three stories.

The first story is about connecting the dots.

I dropped out of Reed College after the first 6 months, but then stayed around as a drop-in for another 18 months or so before I really quit. So why did I drop out?

It started before I was born. My biological mother was a young, unwed college graduate student, and she decided to put me up for adoption. She felt very strongly that I should be adopted by college graduates, so everything was all set for me to be adopted at birth by a lawyer and his wife. Except that when I popped out they decided at the last minute that they really wanted a girl.

So my parents, who were on a waiting list, got a call in the middle of the night asking: “We have an unexpected baby boy; do you want him?” They said: “Of course.” My biological mother later found out that my mother had never graduated from college and that my father had never graduated from high school. She refused to sign the final adoption papers. She only relented a few months later when my parents promised that I would someday go to college.

And 17 years later I did go to college. But I naively chose a college that was almost as expensive as Stanford, and all of my working-class parents’ savings were being spent on my college tuition.

After six months, I couldn’t see the value in it. I had no idea what I wanted to do with my life and no idea how college was going to help me figure it out. And here I was spending all of the money my parents had saved their entire life. So I decided to drop out and trust that it would all work out OK. 

It was pretty scary at the time, but looking back it was one of the best decisions I ever made. The minute I dropped out I could stop taking the required classes that didn’t interest me, and begin dropping in on the ones that looked interesting.

It wasn’t all romantic. I didn’t have a dorm room, so I slept on the floor in friends’ rooms, I returned coke bottles for the 5¢ deposits to buy food with, and I would walk the 7 miles across town every Sunday night to get one good meal a week at the Hare Krishna temple. I loved it. And much of what I stumbled into by following my curiosity and intuition turned out to be priceless later on. Let me give you one example:

Reed College at that time offered perhaps the best calligraphy instruction in the country. Throughout the campus every poster, every label on every drawer, was beautifully hand calligraphed. Because I had dropped out and didn’t have to take the normal classes, I decided to take a calligraphy class to learn how to do this. I learned about serif and san serif typefaces, about varying the amount of space between different letter combinations, about what makes great typography great. It was beautiful, historical, artistically subtle in a way that science can’t capture, and I found it fascinating.

None of this had even a hope of any practical application in my life. But ten years later, when we were designing the first Macintosh computer, it all came back to me. And we designed it all into the Mac. It was the first computer with beautiful typography. If I had never dropped in on that single course in college, the Mac would have never had multiple typefaces or proportionally spaced fonts. And since Windows just copied the Mac, its likely that no personal computer would have them. If I had never dropped out, I would have never dropped in on this calligraphy class, and personal computers might not have the wonderful typography that they do.

Of course it was impossible to connect the dots looking forward when I was in college. But it was very, very clear looking backwards ten years later.

Again, you can’t connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something — your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.

My second story is about love and loss.

I was lucky — I found what I loved to do early in life. Woz and I started Apple in my parents garage when I was 20. We worked hard, and in 10 years Apple had grown from just the two of us in a garage into a $2 billion company with over 4000 employees. We had just released our finest creation — the Macintosh — a year earlier, and I had just turned 30. 

And then I got fired.

How can you get fired from a company you started? Well, as Apple grew we hired someone who I thought was very talented to run the company with me, and for the first year or so things went well. But then our visions of the future began to diverge and eventually we had a falling out. When we did, our Board of Directors sided with him. So at 30 I was out. And very publicly out. What had been the focus of my entire adult life was gone, and it was devastating.

I really didn’t know what to do for a few months. I felt that I had let the previous generation of entrepreneurs down - that I had dropped the baton as it was being passed to me. I met with David Packard and Bob Noyce and tried to apologize for screwing up so badly. I was a very public failure, and I even thought about running away from the valley. But something slowly began to dawn on me — I still loved what I did. The turn of events at Apple had not changed that one bit. I had been rejected, but I was still in love. And so I decided to start over.

I didn’t see it then, but it turned out that getting fired from Apple was the best thing that could have ever happened to me. The heaviness of being successful was replaced by the lightness of being a beginner again, less sure about everything. It freed me to enter one of the most creative periods of my life.

During the next five years, I started a company named NeXT, another company named Pixar, and fell in love with an amazing woman who would become my wife. Pixar went on to create the worlds first computer animated feature film, Toy Story, and is now the most successful animation studio in the world. In a remarkable turn of events, Apple bought NeXT, I returned to Apple, and the technology we developed at NeXT is at the heart of Apple’s current renaissance. And Laurene and I have a wonderful family together.

I’m pretty sure none of this would have happened if I hadn’t been fired from Apple. It was awful tasting medicine, but I guess the patient needed it. Sometimes life hits you in the head with a brick. Don’t lose faith. I’m convinced that the only thing that kept me going was that I loved what I did. You’ve got to find what you love. And that is as true for your work as it is for your lovers. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it. And, like any great relationship, it just gets better and better as the years roll on. So keep looking until you find it. Don’t settle.

My third story is about death.

When I was 17, I read a quote that went something like: “If you live each day as if it was your last, someday you’ll most certainly be right.” It made an impression on me, and since then, for the past 33 years, I have looked in the mirror every morning and asked myself: “If today were the last day of my life, would I want to do what I am about to do today?” And whenever the answer has been “No” for too many days in a row, I know I need to change something.

Remembering that I’ll be dead soon is the most important tool I’ve ever encountered to help me make the big choices in life. Because almost everything — all external expectations, all pride, all fear of embarrassment or failure - these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.

About a year ago I was diagnosed with cancer. I had a scan at 7:30 in the morning, and it clearly showed a tumor on my pancreas. I didn’t even know what a pancreas was. The doctors told me this was almost certainly a type of cancer that is incurable, and that I should expect to live no longer than three to six months. My doctor advised me to go home and get my affairs in order, which is doctor’s code for prepare to die. It means to try to tell your kids everything you thought you’d have the next 10 years to tell them in just a few months. It means to make sure everything is buttoned up so that it will be as easy as possible for your family. It means to say your goodbyes.

I lived with that diagnosis all day. Later that evening I had a biopsy, where they stuck an endoscope down my throat, through my stomach and into my intestines, put a needle into my pancreas and got a few cells from the tumor. I was sedated, but my wife, who was there, told me that when they viewed the cells under a microscope the doctors started crying because it turned out to be a very rare form of pancreatic cancer that is curable with surgery. I had the surgery and I’m fine now.

This was the closest I’ve been to facing death, and I hope its the closest I get for a few more decades. Having lived through it, I can now say this to you with a bit more certainty than when death was a useful but purely intellectual concept:

No one wants to die. Even people who want to go to heaven don’t want to die to get there. And yet death is the destination we all share. No one has ever escaped it. And that is as it should be, because Death is very likely the single best invention of Life. It is Life’s change agent. It clears out the old to make way for the new. Right now the new is you, but someday not too long from now, you will gradually become the old and be cleared away. Sorry to be so dramatic, but it is quite true.

Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma — which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.

When I was young, there was an amazing publication called The Whole Earth Catalog, which was one of the bibles of my generation. It was created by a fellow named Stewart Brand not far from here in Menlo Park, and he brought it to life with his poetic touch. This was in the late 1960’s, before personal computers and desktop publishing, so it was all made with typewriters, scissors, and polaroid cameras. It was sort of like Google in paperback form, 35 years before Google came along: it was idealistic, and overflowing with neat tools and great notions.

Stewart and his team put out several issues of The Whole Earth Catalog, and then when it had run its course, they put out a final issue. It was the mid-1970s, and I was your age. On the back cover of their final issue was a photograph of an early morning country road, the kind you might find yourself hitchhiking on if you were so adventurous. Beneath it were the words: “Stay Hungry. Stay Foolish.” It was their farewell message as they signed off. Stay Hungry. Stay Foolish. And I have always wished that for myself. And now, as you graduate to begin anew, I wish that for you.

Stay Hungry. Stay Foolish.

Thank you all very much.

-Steve Jobs

Brian

Quote for the Day:  “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”

Obviously, the trust fund manager’s job in making the REIT profitable is to select the best real estate investments.  In “up” economies, the pickings are large with high profits, and in “down” economies, the pickings are small with low profits.  That can be seen in the Dow Jones graph you refer to.  http://finance.google.com/finance?tkr=1&q=.REIT  Back in its heyday, mostly due in part to the availablity of mortgage money, real estate across the country was very profitable, so REIT’s were profitable and an excellent place to put your money in the stock market.  Looking at the five and ten year trends, those trust funds have been on a steady climb.  However, looking at the past year, the trend has been down but still higher in the overall picture.  Looking at the beginning of this year, the numbers were at the highest levels ever at 1,134 (an average of all REIT’s).  There had been a slow, steady decline since that high and the average finally hit rock bottom in August at 851, a 25% drop.  Since August, the trend has been back up.  As of Friday, October 19, the average for all REIT’s was 938.  That falls in line exactly with the timing of the sub-prime mortgage market fallout and the steady decline of the real estate industry as a whole.

As many surmise, those REIT managers have their “finger on the pulse” of the real estate market.  Because it is their job to make the trust fund profitable, the managers select real estate investments in the best areas.  Those investments are all across the states and in other countries as well.  The trick is to find the most profitable investments.  Each trust fund manager has their own strategy, but you can bet they are noticing the upturn in our local market as well as other markets like in Dallas, Houston, Atlanta and New Orleans.  Those markets are up, and as a result, the REIT’s numbers are rising up too.  That trend is something mortage companies are noticing as well.

The real estate market is on the rebound.  In fact, today’s Indianapolis Star included yet another article from sources stating that now is the best time to buy in the local market.  And, “Consumers who take advantage of this excellent buying climate to purchase a home will find that it is the best investment they ever made”.  Prices are at rock bottom and the only way they have to go is up.  Couple that with mortgage companies rebounding and buyers ready to jump in, and we are at the threshold of an investor’s dream market.

I did a little more REIT market research for you.  As I expected, the information available is somewhat specific, but still generic.  I tried to get a prospectus online for these funds but they were not available.  Although the information is not specific, I found it interesting that every one of the top funds have Simon Property Group in their portfolio.  Simon is based out of Indianapolis with several retail malls and strip centers throughout the midwest including several here in the Indianapolis metro area.  Simon Property Group is a huge company and tracks real estate closely.  If the REIT fund managers like Simon enough for each of those managers to pick Simon for their funds, I believe that is saying something for the local company and local real estate market.  I think it is safe to say that the REIT fund managers like what Simon is doing.  Below are the top 4 REIT funds and the percentage of holdings in each.  I got the following information from www.forbes.com.

Top Holdings for Fidelity Real Estate Investment Portfolio:
 
Starwood Hotels & Resorts Worldwide Inc (HOT)  10.45%
 
ProLogis (PLD)  9.37%
 
Simon Property Group Inc (SPG)  9.02%
 
Equity Residential (EQR)  5.76%
 
Public Storage (PSA)  5.58%
 
Holdings data through 7-31-2007.

————————————-
Top Holdings for Alpine Realty Income & Growth Fund :
 
Vornado Realty Trust (VNO)  5.33%
 
Simon Property Group Inc (SPG)  5.04%
 
Boston Properties Inc (BXP)  4.81%
 
Starwood Hotels & Resorts Worldwide Inc (HOT)  4.32%
 
iStar Financial Inc (SFI)  4.21%
 
Holdings data through 6-30-2007.

—————————————-

Top Holdings for Morgan Stanley Institutional Fund :
 
Simon Property Group Inc (SPG)  9.38%
 
Host Hotels & Resorts Inc (HMT)  7.67%
 
Equity Residential (EQR)  7.62%
 
Boston Properties Inc (BXP)  5.94%
 
Brookfield Properties Corp (BPO)  5.31%
 
Holdings data through 8-31-2007.

—————————————

Top Holdings for T. Rowe Price Real Estate Fund:
 
Simon Property Group Inc (SPG)  5.56%
 
Equity Residential (EQR)  4.01%
 
Macerich Co (MAC)  3.71%
 
General Growth Properties Inc (GGP)  3.41%
 
Host Hotels & Resorts Inc (HMT)  3.36%
 
Holdings data through 6-30-2007.

-B

The State of Indiana is looking at the biggest changes that will have a direct impact on every property owner throughout the state.  Property taxes have increased on average by 50% from tax year payable 2006 to tax year payable 2007.  Many property owners saw their property tax bill increase by 100% and still other saw 200%+ increases in their tax bills.  The full impact of those increases is yet to be seen.  Mitch Daniels, Indiana’s Governor, suspended those tax bills for many counties early in the summer.  The reason being, assessed values were not correct due to faulty assessment practices.  Many properties were assessed at the wrong value and consequently, their tax bills were incorrect.  The Governor ordered those counties to reassess every property in those districts.  Once that reassessment is complete, new tax bills were to be sent out.  As a result, all property owners were required to pay the May and November 2007 property tax installments based upon the 2006 property tax bills, which did not include the 2007 increase.  As a resolution, a third bill will be mailed out and due in the Spring of 2008.  That third bill will reconcile the difference between the amount paid and the amount that should have been paid in 2007.  Are you confused?  So is practically every other resident.
To take care of that issue, Governor Daniels spoke on a live television news broadcast last night to outline sweeping changes.  Those proposed changes are as follows:
Cut property taxes - The Governor’s proposal calls for the State to take over school operating, school transportation and child welfare levies.  Not only will the move provide REAL property tax relief, it will also cut out some of the overwhelming complexity of property taxes, thereby allowing taxpayers to more easily determine who is responsible for property tax spending.  These cuts will be funded by a one-cent sales tax increase.  In addition, Mr. Daniels is proposing to enact a State Constitutional Amendment to permanently set the rate for property taxes.  The set rates would be 1% for homeowners, 2% for rental property, and 3% for business property.  Those percentage rates are based upon the fair market value for those properties.  Those changes will amount to an average of approximately 33% reduction in everyone’s property tax bill.
Fix the assessment system - Through a variety of structural changes, the assessment system will be fixed.  Governor Daniels’ proposal includes two of those structural changes - the elimination of township assessors and the appointment of county assessors.  This will create fewer and larger assessment jurisdictions, leading to equitable, fair market value assessments.  This will also remove the political pressure from assessors, who are charged with ministerial, not policy-making duties.

Those changes are monumental and have long been needed.  Of course we would all prefer to not pay property taxes at all, but that is something that will not happen.  Governor Daniels even mentioned last night that he looked into eliminating property taxes, but that it was something that could not be done.
The Federal Government is taking on the issue of the mortgage problems.  Bill H.R. 3648, Mortgage Forgiveness Debt Relief, includes four changes to the current law:
First, the permanent exclusion from gross income of discharged home mortgage indebtedness.  The bill would provide for a permanent exclusion for discharges of up to two million dollars of indebtedness (on or after January 1, 2007), which is secured by a principal residence.  Instead of including this amount as income, the basis of the individual’s principal residence would be reduced by the amount excluded from income under this bill.  In other words, if an individual loses their house due to foreclosure, the lender will give the borrower a 1099 that includes the amount of debt that was forgiven as a result of the foreclosure.  The borrower would then have to claim that amount as income on their 1040 and pay taxes on that income.  This bill would eliminate that tax.
Second, long-term extension of the deduction for mortgage insurance.  The bill extends the deduction for mortgage insurance for seven years (through the end of 2014).  The bill would provide that payments will quality for this deduction whenever they are paid so long as the contract is entered into after 2006 and before 2015.
Third, modification of the qualifications tests for cooperative housing corporations.  The bill would modify the requirements for qualifying for the special rules available to cooperative housing corporations.  Under current law, a coop housing corporation must meet several requirements, including a requirement that 80 percent or more of the coop housing corporation is earned from the corporation’s tenant-stockholders.  The bill would provide two alternatives to this 80 percent rule (ie. one based on square footage and another based on coop expenditures).  These two alternatives will make it easier to quality as a cooperative housing corporation.
Lastly, modification of exclusion of gain on the sale of a principal residence.  The bill amends the current law exclusion of up to $250,000 for a single person ($500,000 if married filing jointly) of a gain realized on the sale or exchange of a principal residence.  Under the bill, if a taxpayer moves their principal residence to a second home, the taxpayer will only be able to utilize this exclusion to the extent that it relates to the period of time when the homes was first used as a principal residence.
As mentioned above, these are only proposals and are not law.  Overall, I believe these changes to be a step in the right direction.  Time will tell what the actual impact will be.  I am keeping my eyes and ears open.  What do you think?

-B

Lets Discuss this on the forum!

Southern Broad Ripple:
48 sold properties, 23 of those were non-REO properties and 25 of them were REO type sales.  That is an even split and something I have noted for quite a while.  The even better news is this, the average DOM (days on market) is at an average of 105 days.  Out of the 23 non-REO properties, 11 of them sold in less than 90 days and 9 of them sold in less than 60 days.  I also did a cross reference check of currently active properties and the numbers aligned almost perfectly in regard to the numbler of REO (50-50) and non-REO properties and the average DOM (110 days).  Bottom line, these properties are selling, even in the mortgage downturn.  Also, the lowest non-REO sale was $59,500 and the highest $143,000.  Obviously that is a wide range, but shows the low end to be in line with what I have put out.

Tarkington area (South of 42nd Street):
24 sold properties, 7 of those were non-REO properties and 17 of them were REO type sales.  This market has a historically low turnover due to the owners holding onto their properties.  Being close to Butler University really keeps the owners remain as owners, so the data is more skewed and harder to read.  Regardless, the news is just as refreshing.  The average DOM is at an average of 111 days.  The active properties, however, show an even better sign, as the average DOM is even less at 93 DOM.  The lowest non-REO listing was at $64,900 and the highest was $195,000.  This market is hot just like So Bro.

I hope that helps illustrate that the values are there and that these properties are still selling.  Imagine what the market will look like in 3 months when your first rehabbed properties hit the market.  I can’t stress enough…get in now!!
-B

In addition, the number of households is down by two-thirds  as of the first quarter, which indicates that people are holding back due to uncertainty about the future.  Those opinions are changing as they see more reports about a rebound and notice prices remaining stable.  As an appraiser, I have seen my business decline marginally over the past several months only to see it climb in the past two months.  That bucks usual trends that show the months of August and September are traditionally slower due to kids going back to school.  Families that would normally have moved during the summer months, wouldn’t because of uncertainty or couldn’t because of the mortgage realignment.  They are ready to go now.

As further proof of the mortgage market gaining strength, mortgage applications for home purchases have been rising nearly 10 percent since May.  This data, from the Mortgage Bankers Association, centers on “A” paper loans (good credit), so that increase indicates a rise in quality.  Quite a few mortgage companies shut down, while even more have lost money.  Those that remain have cut their losses and need to make more loans.  They are putting new programs to cater to a larger segment of the mortgage market.

Finally, the rate cuts.  The Fed is expected to cut the interest rates again by the early part of 2008.  That spells even more reason for buyers to come out of hiding.

Many of you have been concerned about buying investment properties.  Every bit of news that is being published gives more support to jumping in now while the fire is hot.  Considering that it will take a few months to acquire, rehab and remarket the property, now is the time to buy in time for the buyers to purchase your property.

Over the course of my investment history I have heard every story in the book from tenants as to why they can’t make their lease payment.  From, “I only get paid every other week and will be a little late this month.” to “I can get you part of the rent next week, just hold out a bit longer.”  Those excuses still resound in my head.  In the beginning, I believed every one of them to my own financial peril.  Over time and after hearing excuse after excuse, I became numb to the tenant’s words.  As much as I wanted to be understanding of their plight, I realized that I had a business to run.  I couldn’t meet my own financial obligations with excuses.  My creditors didn’t care if my tenants weren’t paying the rent.  They simply wanted me to make my payments.

After going through the eviction process with a single mother several years ago, I thought to myself that there had to be a better way to handle the situation.  Tenants don’t want the humiliation of being evicted or the hassle of having to move, any more than landlords like to toss their tenants to the curb.  That single mother didn’t want to transplant her children and I didn’t want to have to put them out on the street.  That situation hit me hard and I knew there had to be a better way to help my tenants while I managed my own financial concerns.

When I stared out in this business, I foolishly trusted everyone.  I didn’t check the credit worthiness of my tenants; I didn’t call previous landlords; and I didn’t ask about the tenants needs.  I simply placed an ad in the paper, waited for a prospective tenant to call, we signed a lease agreement and the tenant moved in.  For the most part I had marginal success with that process, but it would catch up with me.  It wasn’t until later that I started to understand what the rental business required and what I needed to do to become a smart landlord.  It took a tenant named “Lisa”, a single mother with two children, to help me learn how I could win in a winless situation.

Start with the basics, screen your tenants.  That seems like such an easy solution, but I can’t tell you how many times I have talked with other landlords that don’t do that simple task.  I am not the one to condemn since I didn’t make any attempt to research my tenants.  With the advent of the internet, it is so easy to do a quick check of tenants.  There are companies that can be hired to verify a tenant’s credit, check their criminal background history and discover if they have written any bad checks.  The cost for that can be put back onto the tenant as an application fee.  In fact, I tell any prospective tenants that I intend to complete a credit and background check and that they are required to pay the cost.  That usually weeds out quite a few “undesirable” tenants.  A simple background check can make or break you as a successful landlord.  However, that process doesn’t cover you for all situations.  Honest and credit worthy people can run into trouble and become bad tenants quickly.

Get to know your tenants from the beginning.  Every tenant has a financial and family situation that you should know.  I am not suggesting that you should delve into your tenant’s entire family history, nor do I recommend that you become best friends with your tenants.  However, having a snap shot of your tenant’s “situation” up front can help turn a potentially bad tenant into a great, long-term tenant.

If I had only asked Lisa about her situation, I could have learned up front that she was recently divorced.  She was living off of a part time job and the child support payments provided by her estranged husband.  I didn’t learn of her plight until she missed her rent payment three months into the lease.  Learning from my earlier mistakes, I was diligent enough to run a credit check on her but I didn’t know about her recent family “problem”.  However, if I had asked the questions, I could have worked with her to come up with a different rental solution from the beginning.  Lisa honestly thought she could make the lease payments.  I discovered too late that the wages from her part time job barely covered the rent, and to add insult to injury, her ex-husband was traditionally late with the child support checks.  At the time, all I cared about was getting her out of my property and finding a new tenant.  That wouldn’t serve either of us as I would discover.

That brings me to my last bit of advice; work with your tenants to amicably work toward a resolution.  Communication can be your final salvation in keeping your investment profitable.  Bad things happen to good people.  People lose their job; they get divorced; they have a medical situation; life happens.  It is unfortunate, but a part of living.  Keep in contact with your tenants.  Not just to collect rent, but to learn of problems with your property and to stay on good terms with your tenants.  If your tenants feel that you genuinely care about their life, they will typically do the right thing in regard to your property and pay the rent.

Concluding the story of my situation with Lisa, she had quickly gotten in over her head and ran into some financial trouble at the beginning of December.  Being a businessman, I had started the process of evicting her through the court system.  I knew that I would have to clean and prepare the property; advertise the property; and start the process all over again during the holiday season.  All of that would add to my expenses since I most likely wouldn’t find a new tenant until late January.  It was not going to be pretty any way it went.  Instead, I decided to visit my tenant.  We talked for about one and a half hours about each of our concerns and needs.  In the end we negotiated a mutually beneficial alternative to eviction.  She remained in the property for December, rent free.  During that time, she cleaned the property and got it ready for a second tenant.  I was on the verge of placing an ad in the paper for a new occupant when Lisa called to say that she found a new tenant for me.  An acquaintance of Lisa needed a space for a short period of time and was willing to fulfill the remaining term of her original lease.  I signed a new lease with Lisa and put her into another property I owned.  We had decreased her rent payment by $125 per month and I gave her the first month at half price which was enough to get her back on her feet.  Once she learned that I cared about her situation and was willing to help her out, she did all that she could assist me and get herself into a better situation.  I can’t tell you how good I felt about resolving that issue.  Lisa was a tenant for the next two years and excepting only one additional late payment (which I knew about before hand due to our communications), she was a wonderful tenant.  We turned a potentially bad situation into a good one.

I had helped a tenant out of a bad situation and helped myself out of a potential financial loss.  I learned so much from that situation.  In future dealings I used that experience with other tenants that had trouble paying.  Don’t get me wrong, I have had some tenants that I just couldn’t work with, but overall I would consider my landlord experience a good one and best of all, I sleep sound at night. All tenants won’t be like Lisa, but it is an example of what can happen by being a smart landlord.

Leasing property and being a landlord is not for everyone.  With correct information and better tenant selection from back ground checks; making smart decisions for you and the tenant at the beginning; and maintaining a little patience in dealing with a potentially bad tenant, you can be a smart landlord and see great financial benefits.

And so the question for you is out there, “Could you throw out a single mother with three children on Christmas Day?”  Think long and hard on it.  Be honest with yourself.  Could you do it?  Hopefully you will never be placed in that situation; however, if you are a landlord long enough, you be placed in the position of having to make tough decisions.  It is inevitable.  It is not pleasant, but a necessary evil in this business.  No one likes to be the bad guy, so why not look for solutions to avoid having to make that decision.  To this day I have never forgotten that “advice”.  It was a good test of whether or not I would make a smart investor and an even better landlord.

Ten Cities Ready To Bounce Back
By Paul Kaihla, CNNMoney.com
 

The horror show of America’s residential real estate market just keeps getting scarier, what with the sub-prime mortgage crisis threatening to slash demand for homes while the inventory of unsold properties continues to pile up. It’s enough to send any prudent investor fleeing to the relative sanity of, say, the stock market.

Don’t. Instead, get ready for the bounce-back. The oldest rule of investing dictates that you buy low and sell high. Real-estate buyers aren’t at the gate, however, because most local markets have yet to hit bottom. In fact, most cities won’t do so for another year.

But Business 2.0, working with Moody’s Economy.com, has unearthed 10 major metropolitan areas that are bucking the national housing trend. By the beginning of next year, these markets should be coming back to life — and in our exclusive rankings, we’ve projected the house-price appreciation these cities will enjoy during 2008 and 2009. The gains may seem modest — they range from about 4 to 7 percent — but remember, in the midst of the current housing meltdown, any gain at all constitutes a minor miracle.

What our 10 cities have in common is that they’re relatively affordable. They missed out on the housing bubble, yet they still enjoy steady employment and income growth. Not surprisingly, five of the 10 are state capitals with hefty public payrolls. Even more telling, with the exception of the three Texas metros ( Austin, Dallas, and Houston), the big national builders didn’t make significant incursions into these markets.

“These cities didn’t draw in speculators or investment the way the coastal markets did,. says Celia Chen, the Economy.com economist who crunched our numbers.” “House prices in these places weren’t untethered from the underlying fundamentals.” These underappreciated — but soon-to appreciate — housing markets offer real opportunities to the savvy investor.

Indianapolis

Projected median sales prices for single-family homes:
Q1 2008: $122,940
Q4 2009: $130,630
Growth rate: 6.3 percent

Indianapolis is riding a few trends that are bringing about an early recovery in its real estate market. While Indiana’s capital city did join in the housing boom this decade, prices didn’t reach the stratosphere. Indianapolis still suffered through the downturn, though: Building permits for new homes dropped 30 percent from their peak in 2005. But the housing market hit bottom earlier here than in most parts of the country — during the last quarter of 2006. Now, with the local economy poised to grow faster than the national average over the next two years, house prices are projected to post a respectable gain.

Indianapolis’s low unemployment rate has made it a destination for people fleeing cities like Fort Wayne, Gary, and Terre Haute. It’s also relatively cushioned from slowdowns in the national economy because more than a third of its workforce is employed in stable sectors like professional and business services, health care, education, and government. Those white-collar corps also helps boost Indianapolis’s median household income to $50,500 a year. Given that you can buy a four-bedroom, 2,000-square-foot home for less than $200,000, this makes the place the nation’s most affordable major metro.

Don’t get discouraged by this news! The properties that are bought by the lenders are then re-listed by a Broad Listing Broker. These local real estate agents list the properties for sale and are available to us. That is where I find a lot of our Investor’s Choice deals. Through my years of writing appraisals, I have worked with several of those BLB’s and have good relationships with them. In fact, I write appraisal reports for those brokers to help price the bank owned/REO properties. There are a few positives from that deal. First, we are not competing with 60 investors and lender representatives at a sheriff sale to buy the property. Secondly, we receive a special warranty deed from the lender when we purchase directly from them. When we purchase a property at a sheriff sale, we only receive a sheriff’s deed which does not provide a lot of protection from other lien holders trying to collect money. Lastly, I am helping to price those homes and have a “leg up” on the public about those properties. Take advantage of the resources that you have available. Not many investors have the wide range of benefits that are accessible to you, especially at the price you pay.

Lets discuss this more on the Investor’s Choice Indy Forum at:
Foreclosures In Marion County, Indiana

-B

Indianapolis has long been used as a test market for many companies such as fast food restaurants, snack food manufacturers and a variety of other businesses. Anybody remember the McDLT© and Olestra©? The reason those businesses use us as “guinea pigs” is the fact that Indiana is known as a “vanilla state“. We typically aren’t on the cutting edge of anything like the east and west coast states, and we are considered by those marketers to be representative of the average American people and aren’t subject to wild opinions.

Likewise, our real estate market follows along with that “vanilla state” theory. One thing my 12 years of real estate experience has taught me is that the Indianapolis housing market is stable and has been that way for many years. We didn’t see the massive price increases like the residents of Florida or California saw two and three years ago. However, we haven’t seen the massive price drops and the “bursting” of the “housing bubble” that those states are experiencing. On average, the Metropolitan Indianapolis area has seen a very modest two to five percent increase in house prices for at least the past 8 years. That is a general percentage as some areas have remained stagnant such as sections of Marion County, while other areas such as Zionsville and Noblesville have seen higher percentages. Ironically, the Zionsville area has very recently seen a larger drop in housing prices.

As long as Indiana remains a vanilla state, we won’t see the rapid price increases or price decreases in the housing market. Knowing that information, it came as no surprise to me to see that Indianapolis placed second in Business 2.0 magazine’s October ranking of the Top 10 cities poised for a housing turnaround. Dallas/Fort Worth was ranked number one. New Orleans, Atlanta, and Montgomery Alabama followed Indianapolis, with Memphis, Mobile, Austin, Houston and St. Louis rounding out the top ten. The magazine forecasts that Indianapolis will see a 5.6 percent spike in housing prices by 2009. Low unemployment, an influx of white collar jobs and ease of finding reasonable housing were all cited as reasons for the market rebound. The magazine went on to state that Indianapolis is “the nation’s most affordable major metro” area.

That percentage spike is not a huge number, but is it very encouraging considering the state of the real estate market throughout the nation. In fact, many local real estate companies are already planning for this rebound. The Indianapolis Star recently quoted Donna Kreps, the general sales manager for F.C. Tucker (the city’s largest real estate company) as saying, “she (sic) credits the predicted turnaround to an increase in jobs in the area, more consumer confidence and lower interest rates.” She went on to say, “her (sic) real estate company is planning for an uptick in business – including increasing its recruitment.”

Again, this does not come as a surprise to me at all. I have been saying those things all along. Sure we are experiencing a mild hiccup right now in the market due to the mortgage predicament, but all of the indicators point to the fact that our city is ready to recover quickly. The doom and gloom seen on the national news about the poor real estate market may apply to other states, but Indianapolis has risen above those states. Now is the time to take advantage of some really great opportunities. Don’t let general news articles and reports, or uneducated opinions prevent you from jumping into that real estate investment arena. With desperate sellers and low interest rates, we are still in a buyer’s market. Buy now while the prices are very low, and sell later as the market begins to rise. What is your strategy for success? What goes down, will always find its way back up.

Lets discuss this more on the Investor’s Choice Indy Forum at:
Indianapolis Housing on the Rebound

-B

Here are some small steps that have been taken to get things put back on the right track.
1)  Hotlines: Set up to help homeowners learn how to bargain with lenders and assist them with some refinancing plans.
2)  Financial Aid: State will offer loans to help pay for refinancing fees.
3)  Delays: Postponing foreclosures to help homeowners buy time to get their problems worked out.

Federal regulators along with policymakers are jumping in as well.

Here are some of the actions that they are taking:
1)  Interest rate cuts: This will help homeowners with adjustable loans by limiting the hike in monthly payments.
2)  Loan Purchases: Fannie Mae and Freddie Mac have permission to expand their portfolios up to 2%. This will allow them to hold more mortgages easing the logjams in the secondary market.
3)  Jawboning: New guidelines from Washington are urging lenders to spot trouble early and become proactive by waiving penalties and cutting prepayment costs that prevent refinancing.

Now is the time to get involved with real estate investments.  These actions will not only help strengthen the real estate market, but will also provide a greater number of buyers to purchase our properties.