After tax investment yields

When considering an investment property, please consider the after-tax view. Cap rates are hardly useful in analysing a true investment over time. With cost recovery (depreciation) making such a huge impact on the IRR (internal rate of return), this makes the investment far more attractive. What is also very important is the cost of your money. Waiting 60 or 90 days to do a conduit loan to acheive excellent rates is worth all the effort. The stock markets are faltering, time to get into 10 year loan money before cap rates adjust.

4.95% of all mortgages late last Quarter

Wow, that's a huge number. And this is in 4th quarter 2006. I'm sure it is worse this quarter. Those are not numbers that the banking industry can support easily. Unless we get a real fast rebound in home values - which won't happen across the country anytime soon - there will be a lot of blood on the books of banks. The banks will slow the foreclosure process down to a trickle if they can. Work out deals will be easily had. So that the banks can not take the actual losses, while waiting for an economic miracle. What happens when bankers fail to get their bonuses...?

A Building for Your Business

When considering to purchase a building for your business think business first. Which building will give your business the best combination of location, size, dimentions, zoning, functionality, less maintenance, visibility - the list goes on and on. My point is - price is secondary to the goal which should be will this building allow me to make more money (and how much more) in my core business. Real estate as an investment takes a back seat. If your desire is to invest in real estate, don't tie your hands by coupling your business needs and your investment ones. We can also talk about a lease vs. buy analysis - very lopsided in a low lease rate environment.

Lenders requirements tightening = what?

The zero down payment loan with stated income ratios for sub prime borrowers is a thing of the past. Apartment owners should be happy. This will stem the flow of tenants moving out to buy condos. This added stability in the rental market will continue to have good upward pressure on rents.

Beware the Land Speculator

I was just reminded with a current example of a company that is selling the dream of land, land, land. Easy proposition - buy in the path of future development and get rich! What is not evident are the double escrows by the "sponsor" who pocket 100% markups upon close of escrow. And then the always asked question - why don't they buy these get-rich-later schemes - answer - they have a better get-rich-now scheme. Am I synical, yes. Period.

Singapore real estate market on fire

A very good friend of mine is relocating to Singapore and he is facing the reality of a landlord's dream market. Rents are rising dramatically and competition is fierce. Singapore is looking to remake itself in two major ways. First, as a financial and banking hub similar to Hong Kong. Second, as a gambling destination like Macau. Many places are gunning for those dollars in that region. Population is also expected to rise by a third in 10-15 years. What seems expensive today, will look cheap tomorrow.

Tax planning and investment real estate

Cheryl Ramos of Ramos & Ramos CPA presented a very interesting tax plan for those with elderly parents. If the parent owns their home and they are in a low tax bracket - probably retired - they are not benefiting much from deductions from their home. Low property tax bill, low mortgage deductions or none at all and large equity tied up in the house are common situations. Her proposal is for the adult children to buy the parent's house and rent the house to the parents. Why you ask? Benefits are many. The kids get many tax benefits as a rental property. The parents free up a large amount of equity (much of which may be capital gains excluded), they don't have to move, they can gift some of the funds to their kids, etc. The children can deduct travel expenses to "manage" their investment property. This may be a win-win for all involved.

Interest Rates and Cap Rates

There's a huge difference between a 7 cap rate deal and a 7 cap rate deal. It's timing. The cost of money has a huge impact. If you are borrowing at 6.25% or 5.75% for example. Case in point today vs. 1 month ago. Rates are down sharply and savvy investors should move quickly before they pop back up.

Fractional Ownership of Vacation Properties

Would you rather buy a $500,000 basic condo in Lake Tahoe by yourself or a $3,000,000 stunning home in Lake Tahoe with 5 other people? You say "but I hate other people" - yes that may be true. What is also true is that realistically you will not spend more than 60 days in either of these places per year. And, the $3M stunner is unbelievably beautiful. Add a competant property manager - which you would have in either case - and you have luxury and utility at a basic price. What would rent out better, by the way? Now, your long term plan is to buy out your co-owners piece by piece. Crafty, huh?

Finally Sobrato's San Jose Office Deal is Done!

After 4 long years, the castle that Sobrato built will finally be occupied. 488 Almaden Blvd, at the southern gateway to San Jose's downtown is being purchased by BEA Systems. The Sobrato company could not find a tenant to occupy the whole building - they would have easily leased the building if they wanted a multi-tenant building. That's quite some strength and resolve in Mr. Sobrato. In the end, the decision makers at BEA saw the light and will now own their corporate headquarters. This is a boon for downtonn. Approximately 1,000 jobs to be relocated there and its a huge benefit to the condo tower developers. If you were a BEA engineer, would you not put a deposit down on a new condo there?

1031 Exchange time contraints

45 days!!! I'll never find a property in such a short time. Perhaps, yet most investors have much more time than that. At the point you have a buyer making an acceptable offer on your to-be-relinquished property, is when the real clock starts. You should figure 30 days for a simple close of escrow plus the 45 days after. 75 seems better than 45. What savvy sellers do also, is to ask for one or more extensions on the sale at the seller's discretion. If the buyer is motivated, they'll consider this. A couple 30 day extensions is powerful. Best advice is to really understand the market in where and what you want to buy. Really you only need a few days with deep industry knowledge. Happy exchanging.

1031 Reverse Exchanges

The investment properties market moves fast. You are at a disadvantage when competing for property when you have to write offers contingent on the sale of another property. This is typical in a 1031 exchange when the relinquished property is either "in escrow" pending a closing or worse - not on the market or sitting there without offers. Buyers who are writing offers contingent free will have the upper hand. This is especially true on very well priced or attractive property. The reverse exchange can make you a contingent free buyer. There are hoops, yes. When have there never been hoops? And it costs more, sure. The benefits can be significant though.

Interesting Real Estate Investment Magazine

In Beta format as of yet - Nuwire Investor - is an online magazine devoted to "alternative investments". One of which is real estate. Their current poll results of what most interests their readership is as follows:
US real estate 39%, International real estate 22%, lending 22% and then the rest is small potatoes in comparison. Is there a trend towards real estate as an investment - absolutely. The lending category is quite interesting too in that people with capital (read baby boomers) want income streams generated from their investments. The rise in popularity of NNN investments is driven by this desire too. OK Mario get to the point - Cap rates will continue to have downward pressure, especially on high quality NNN investments due to higher demand and a ton of capital needing to be placed by those slightly older than me;-)

Dirt Lawyers

There are many breeds of attorney out there. Hoge Fenton in San Jose is the kind you want when transacting a real estate transaction. But lawyers are deal killers, some say, and sometimes that is true. I've seen this happen many times. Though, the right attorney understands that transactions should happen and risk is a natural part of real estate and by the way - LIFE! Also - the term "dirt lawyer" is a respected moniker amongst those with JD degrees. Or you can be boring and call them real estate attorneys or... yawn... land use attorneys. Check out their awesome website resource called dirtlawyer.com

51 New Condo Development

Last weekend was Centex's "51" Valentine's debut. I know the grammar doesn't flow well in that sentence, though the development has the flow of an experienced Fung Shui expert.
This development borders the train tracks of the main San Jose station. Wait! That's a good thing. The side that borders the tracks is the popular side for many buyers. I thought it was wonderful. San Jose skyline veiws, urban intrigue downstairs, light from the East and "public" privacy. Walk to see Madonna when she comes in to the Shark Tank. Be a loyal puck head. Shop and dine along the renovated The Alameda. And hop in your car to your Cisco or Yahoo job. I believe this valley is overcoming the housing issue with wonderfully designed condo developments. Kudos to Centex.

Yield maintenance and Defeasance

Most very attractive commercial financing over the last few years has been saddled with the burdens of yield maintenance or defeasance clauses. Essentially this is a prepayment penalty that does not go away, can be huge and can hinder the effective marketing of an investment property. Yield maintenance is simple - a formala is used to calculate what the prepayment penalty is based on the current market interest rates and the remaining term of the loan. This can be a large amount, but a seller can sell if he sees economic benefit. Defeasance is another difficulty all together - the loan cannot be retired, period. Companies such as Capital Defeasance Group provide the solution. The loan is removed from the property, the seller can sell unencumbered, the loan is then replaced to the lender by a portfolio of fixed rate income products (treasury notes and bills) which continue to pay down the loan according to schedule. Simple right? Actually yes, just difficult to explain without a powerpoint presentation. There definitely are significant costs involved. The upside is a property that CAN be sold.

YouTube, risk and REWARDS

As quoted in Michael Liedtke's YouTube article today in the Merc: "You can sort of look at Silicon Valley as a giant casino where you need the slot machines to pay off at certain intervals. It's payoffs like this that makes people want to keep taking risks." - Keith Rabois (a YouTube investor). What does this have to do with real estate in the Bay Area? Mucho my dear investor - The vibrant, the intelligent, the movers and shakers will continue to thrive here - Many will win and those wins will continue to make this a place where everyone wants to attempt to be. With jobs available and payoffs in the minds of each techie out there, Silicon Valley will continue to be a crowded place.

Good real estate anecdotal evidence

Not scientific, but significant - I keep seeing emails through our intranet of agents asking for homes that are not yet on the market (MLS). This activity is typical of a tight or tightening market. Frustrated agents and their frustrated buyers who can't land a home, seeking an advantage in this market. If there were volumes of homes sitting on the market, this tactic would not be necessary. Beware the Spring - have your pens ready and your track shoes on.

Zero cash flow?

Some investors need no cash flow. Why? Normally because they have very good cashflow from other investments and need some tax sheltering. There are many investments out there, especially in high-quality single tenant NNNs such as CVS drug stores that are structured specifically for this purpose. Current financing is in place at the maximum amount so that the income from the property exactly pays the mortgage. What this also provides is extreme leverage. Most of these deals average around 15% downpayment. Who do you know that needs some tax sheltering? Hmmm?

TIC investment in Santa Cruz

A Realtor buddy of mine is working on an interesting investment. He bought a fourplex in Santa Cruz for $250,000 per unit, added $30,000 per unit for new kitchens and baths. $1,500 for a TIC agreement by the preeminent Bay Area legal authority. Now he is selling the units for $400,000 per. Simple? Yes. Profitable? Yes. So, why isn't everyone doing this?