Wealth In Real Estate

How Real Estate Investors Can Protect Themselves From The IRS

admin — Tue, 26 Mar 2013 18:52:59 +0000

Philip Panitz

Thanks to the new ObamaCare Medicaresurtax, real estate investors now have an additional reason to try to qualify as “real estate professionals”. The 3.8% surtax, which kicked in January 1, applies to “investment” income—including rental income and capital gains– to the extent a couple has modified adjusted income above $250,000 or a single person has MAGI above $200,000. But as CPA Peter J. Reilly explains here and CPA Tony Nitti explains here, there is an exception for those who can qualify as real estate professionals—they don’t have to pay the extra 3.8% on rental income or gains from their property. The catch? Qualifying is a lot harder than you might think and it’s an area that has already been getting scrutiny from Internal Revenue Service auditors for a different reason: the ability it gives taxpayers to claim losses. In the following guest post, California tax attorney Philip Panitz discusses what he sees as anIRS audit “war” against real estate investors and offers advice on how taxpayers can protect themselves from becoming casualties. For additional insight into the IRS’ positions, read its Audit Technique Guide here.

Read the article: http://www.forbes.com/sites/janetnovack/2013/03/26/how-real-estate-investors-can-protect-themselves-from-the-irs/

Owning a Rental Property Is ‘Sweet Spot’ in Market

admin — Fri, 08 Feb 2013 18:38:14 +0000

Low mortgage rates have made buying a home more affordable and turned rentals into an attractive option for investors. Demand for rental housing is expected to remain strong. “In this market, at this point, it’s a sweet spot,” says Chris Princis, a senior executive at financial advisory firm Brook-Hollow Financial and owner of two rental properties in Chicago. “You’re getting the market where it’s just starting to rebound, but still at the bottom, with what’s looking to be a great recovery.”
Read article – FoxNews.com

More Americans Bank on Real Estate to Build Wealth

admin — Wed, 07 Nov 2012 20:04:32 +0000

Some Americans are embracing the investor role in real estate, hoping it will fund their future retirement. First-time investors are taking the strategy of buying foreclosed homes at super low rates and turning them into rental properties to increase cash-flow now and hopefully later too. To fund their purchase, these first-time investors are tapping retirement accounts and transferring their cash into self-directed Individual Retirement Accounts, which allow them to invest and then funnel the returns back into the accounts.
Read article – Realtor Magazine

Vacancies scarce in rental houses in metro area, rents rise

admin — Fri, 16 Mar 2012 15:59:40 +0000

By Howard Pankratz:The Denver Post

Vacancies in rental condos, single-family homes and other small properties across the Denver metro area rose slightly during the fourth quarter although the market remained tight with a rate of 2.1 percent, according to a report released today by the Colorado Division of Housing.

According to the report, which does not include apartments, the metro-wide vacancy rate during the fourth quarter of 2011 was up from 2010′s fourth-quarter rate of 2.0 percent while it was down from 2011′s third-quarter rate of 3.4 percent.

Ryan McMaken, spokesman for the the Division of Housing, said that although the vacancy rate went up slightly year-over-year, “that doesn’t mean much because when you’re looking at vacancy rates below three percent, the bottom line is that the market is tight.

“For many people, it’s not easy to buy a house right now, so they’re renting,” he said.

The vacancy rate varied among different types of properties, though only triplexes reported vacancy rates above three percent. The vacancy rate for detached houses was 1.6 percent, and it was 2.0 percent in rental townhouses.

At the county level, the lowest vacancy rates were found in Douglas and Jefferson counties. The vacancy rate was 1.5 percent in both counties.

Vacancy rates for other counties surveyed were: Adams, 4.8 percent; Arapahoe, 2.5 percent; and Denver, 2.1 percent.

The average rent in the Denver area for single-family and similar properties rose to $1,062 during 2011′s fourth quarter; rising 3.2 percent from 2010′s fourth-quarter average rent of $1,029.

The fourth quarter’s average rent was also up from 2011′s third quarter average rent of $1,049.

The average rent rose, year over year, in all counties. Average rents for all counties were: Adams, $1,186; Arapahoe, $1,006; Denver, $992; Douglas, $1,416; and Jefferson, $1,021.

Howard Pankratz: 303-954-1939 orhpankratz@denverpost.com

Read more:Vacancies scarce in rental houses in metro area, rents rise – The Denver Post http://www.denverpost.com/breakingnews/ci_20180274/vacancies-scarce-rental-houses-metro-area-rents-rise#ixzz1pIPlbBrF
Read The Denver Post’s Terms of Use of its content: http://www.denverpost.com/termsofuse

Renters Spending 5% More Than Home Owners

admin — Thu, 27 Oct 2011 17:31:28 +0000

DAILY REAL ESTATE NEWS | WEDNESDAY, OCTOBER 26, 2011

Rising rents are forcing renters to outspend home owners on housing costs, according to a new study.

Since 2005, home owners’ housing expenses have climbed from 31.9 percent of their household budget to 33.2 percent. On the other hand, in that same time period, renters’ expenses have jumped from 35.6 percent to 38.4 percent, according to the October CoreLogic U.S. Housing and Mortgage Trends.

In the last 26 years, home owners have increased the amount they spend on household expenses by 12 percent while renters have increased it by 22 percent, according to the study.

Earlier this month, Capital Economics economists noted that for the first time in 30 years the median monthly mortgage payment is about the same — or less — than the median rental payment.

Yet, with the bleak job market, home ownership rates continue to fall in many parts of the country, particularly among younger generations. CoreLogic found in its report that the home ownership rate for the 25-to-34 age group dropped from 51.6 percent in 1980 to 42 percent in 2010. For the 35-to-44 age group, home ownership rates fell from 71.2 percent to 62.3 percent over that period.

Source: “Renters Outspend Owners on Housing,” RISMedia (Oct. 25, 2011) and Capital Economics

Rental Market Posting Record Gains

admin — Thu, 27 Oct 2011 17:30:43 +0000

DAILY REAL ESTATE NEWS | WEDNESDAY, OCTOBER 26, 2011

Apartment rents and occupancies are nearing record highs as demand increases, particularly among former home owners who have faced foreclosure and are now forced to rent than buy. Nationwide, 1.5 million new rental households are expected in 2011 — which would be a record number, according to Green Street Advisors.

By the end of the third quarter, 5.6 percent of apartments stood vacant, the lowest level since 2006, according to Reis Inc. Effective rents increased to $1,004 a month in the third quarter, which is a 2.3 percent gain from last year, Reis reports.

Rising rents are appearing even in the hardest hit cities, such as Orlando, Fla.; Detroit and Phoenix, that have faced some of the highest unemployment rates and biggest losses in housing values, The Wall Street Journal reports. Only Las Vegas rents declined compared to a year earlier, out of the 82 major markets that Reis analyzed.

A lack of supply in rental units to meet the increased demand is causing rents to rise. Reis reported that about 8,200 new apartments were added to the market in the third quarter, but that’s the second lowest number since the company began tracking that data in 1999.

Meanwhile, investors are seeing soaring profits from apartment buildings they may have purchased just a few years ago. In fact, due to rising rents and demand, some real estate companies are expected to post their highest gains since 2006 in property net income for this year and next, The Wall Street Journal reports.

Source: “Apartment Values Rise, as Do Rents,” The Wall Street Journal Online (Oct. 26, 2011)

Key Reasons To Invest In Real Estate

admin — Wed, 19 Oct 2011 16:41:39 +0000

Noel Neo, provided by: Tuesday, October 11, 2011

The global economic recession of 2008 is often linked to the United States housing bubble and subprime mortgages. In the aftermath of the recession, there was much negative sentiment over the real estate sector and few were inclined to consider investments into the sector, in a positive sense.

However, real estate investment is simply the purchase of a future income stream from property and quite undeserving of the tarnish to its reputation. Here are some of the key reasons to invest in real estate.

Competitive Risk-Adjusted Returns
Based on data from the National Council of Real Estate Investment Fiduciaries (NCREIF), private market commercial real estate returned an average of 8.4% over the 10-year period from 2000 to 2010. This credible performance was achieved, together with low volatility relative to equities and bonds, for highly competitive risk-adjusted returns.

Critics would argue that the low volatility characteristic of real estate is the result of infrequent real estate transactions. This means that property values are often determined by third-party appraisals, which tend to lag the market. The infrequent transactions and appraisals result in a smoothing of returns, as reported property values underestimate market values in an upturn and overestimate market values in a downturn.

While it’s true that historic estimates of real estate volatility should be adjusted upward, real time markets are vulnerable to sudden unexpected shocks. A good example of this would be the “Flash Crash” of May 2010, when $1 trillion in stock market value was erased in just 15 minutes. In an environment where market volatility is an issue and the dynamics of algorithmic trading are murky, the more stable pricing of real estate is attractive.

NCREIF U.S. National Property Index Returns

Source: NCREIF, www.ncreif.org/property-index-returns.aspx, 14 July 2011

High Tangible Asset Value
Unlike stocks and, to some extent, bonds, an investment in real estate is backed by a high level of brick and mortar. This helps reduce the principal-agent conflict, or the extent to which the interest of the investor is dependent on the integrity and competence of managers and debtors. Even real estate investment trusts (REITs), which are listed real estate securities, often have regulations that mandate a minimum percentage of profits be paid out as dividends.

Attractive and Stable Income Return
A key feature of real estate investment is the significant proportion of total return, accruing from rental income over the long term. Over a 30 year period from 1977 to 2007, close to 80% of total U.S. real estate return was derived from income flows. This helps reduce volatility as investments that rely more on income return, tend to be less volatile than those that rely more on capital value return.

Real estate is also attractive when compared with more traditional sources of income return. The asset class typically trades at a yield premium to U.S. Treasuries and is especially attractive in an environment where Treasury rates are low.

Portfolio Diversification
Another benefit of investing in real estate is its diversification potential. Real estate has a low, and in some cases, negative, correlation with other major asset classes. This means the addition of real estate to a portfolio of diversified assets can lower portfolio volatility and provide a higher return per unit of risk.

Inflation Hedging
The inflation hedging capability of real estate, stems from the positive relationship between GDP growth and demand for real estate. As economies expand, the demand for real estate drives rents higher and this, in turn, translates into higher capital values. Therefore, real estate tends to maintain the purchasing power of capital, by passing some of the inflationary pressure on to tenants and by incorporating some of the inflationary pressure, in the form of capital appreciation.

The Drawback: Illiquidity
The main drawback of investing in real estate is illiquidity, or the relative difficulty in converting an asset into cash and cash into an asset. Unlike a stock or bond transaction, which can be completed in seconds, a real estate transaction can take months to close. Even with the help of a broker, simply finding the right counterparty can be a few weeks of work.

That said, advances in financial innovation have presented a solution to the issue of illiquidity, in the form of listed REITs and real estate companies. These provide indirect ownership of real estate assets and are structured as listed corporations. They offer better liquidity and market pricing, but come at the price of higher volatility and lower diversification benefits.

The Bottom Line
Real estate is a distinct asset class that is simple to understand and can enhance the risk and return profile of an investor’s portfolio. On its own, real estate offers competitive risk-adjusted returns, with less principal-agent conflict and attractive income streams. It can also enhance a portfolio, by lowering volatility through diversification. Though illiquidity can be a concern for some investors, there are ways to gain exposure to real estate, such that illiquidity is reduced, if not brought on-par with that of traditional asset classes.

Original story - Key Reasons To Invest In Real Estate

Denver No. 10 for growth in apartment rents

admin — Thu, 29 Sep 2011 16:08:11 +0000

Denver Business Journal: Date: Tuesday, September 27, 2011, 12:12pm MDT

Denver ranks 10th in the nation for how much apartment rents have grown since the third quarter of last year, according to a report released Tuesday by RealPage Inc.

Between then and the third quarter of 2011, Denver rents grew by 5.7 percent, trailing Boston’s and Pittsburgh’s 5.9 percent.

Rents at U.S. apartments increased by an average 4.6 percent since the third quarter of last year.

Three California cities topped the list of where apartment rents have increased the most over the past year. San Francisco was first, at 13.4 percent, followed by San Jose’s 13.1 percent and Oakland’s 7.7 percent.

The other cities with the highest rent increases were: Seattle (7.3 percent), Austin (6.9 percent), New York (6.6 percent) and Minneapolis (6.2 percent), followed by Boston, Pittsburgh and Denver.

–denvernews@bizjournals.com

Read the entire article: http://www.bizjournals.com/denver/news/2011/09/27/denver-no-10-for-growth.html

More Investors Bypass ‘Flipping’ for Renting

admin — Thu, 29 Sep 2011 16:00:32 +0000

DAILY REAL ESTATE NEWS | THURSDAY, SEPTEMBER 29, 2011

The days of flipping houses for big profits have all but vanished in many markets as more investors see bigger profits in rentals, according to an article by CNNMoney.

Investors flipped half of their purchases in July, which is down from 75 percent a year prior, Tom Popik, research director for Campbell Surveys, told CNNMoney. The other properties were being held onto to rent out, he notes.

A recent survey by the company HomeVestors found that their investor clients were 57 percent more likely than two years ago to buy a property for renting than to flip.

Rentals are serving as a bright spot in real estate. Demand for rentals has been on the rise, and rents are up about 25 percent from a few years ago. Housing analysts say that investors are buying properties cheaply and then earning good returns immediately from renting them out.

Investors haven’t completely turned their back on flipping homes for profit, though. For example, markets like San Diego are reporting home prices rebounding in some neighborhoods, which is making flipping an option there once again.

Source: “‘I Can’t Flip This House,’” CNNMoney (Sept. 29. 2011)

Six Mistakes Housing Investors Make

admin — Tue, 13 Sep 2011 15:17:33 +0000

Illustration by Scott Pollack

By KAREN BLUMENTHAL

Traditional investments are delivering low returns, and home prices are at bargain levels. Is it time to consider buying some rental housing?

Investing in real estate right now can be surprisingly profitable, if everything goes well. Rents are climbing in many areas, and more properties may be coming on the market. Last month, the Obama administration asked for proposals on how to convert at least some of Fannie Mae’s and Freddie Mac’s bulging inventories of foreclosed homes into affordable rentals.

Investors used to aim for rents that were 1% of the purchase price, or $1,000 a month for a $100,000 home—an annual gross return of 12%—says Michael McCreary. His firm, McCreary Realty, manages about 300 properties in the Atlanta area. Today, he says, some of his investors are getting as much as 2% of the purchase price.

In general, though, average returns after expenses are far less, more like 5% to 6% of the property value, says Ingo Winzer, president of Local Market Monitor, a real-estate forecasting firm. But that still is well above what many other investments yield.

Before you start scouring for deals, keep in mind that owning rental properties is time-consuming, expensive and fraught with challenges, and many investors lose money. You will want to avoid falling into one of these common traps.

• Mistake 1: Confusing a cheap deal for a good deal.

It is true that you can buy some homes for ridiculously low prices—but that doesn’t mean you can rent them out. Homes in deserted subdivisions aren’t any more appealing to renters than they are to buyers. The same is true for less-attractive properties or those in less-desirable school districts.

Investors from the San Francisco area often look at the Sacramento market assuming they can get Bay Area-like rents, and end up overpaying, says Robert A. Machado of HomePointe Property Management. He uses several resources, including the website FinestExpert.com, to estimate rents. Other experts suggest canvassing apartments nearby to see not just their rates, but whether they are offering special deals, like a couple of months of free rent.

• Mistake 2: Overlooking key costs.

Knowing the potential rent isn’t enough. Before you buy a property, you should also factor in closing costs of 3% to 6%, the costs to fix up the place and maintain it, and your holding costs. Then add the profit you expect to make (and more closing costs, if you intend to turn around and sell it). Only then can you figure out what you can afford to pay.

• Mistake 3: Forgetting that time is money.

In real estate, “time is your biggest enemy,” says David Hicks, co-president of HomeVestors of America, a franchiser whose motto is “We Buy Ugly Houses.” You lose money when your property is empty, whether you are painting it or between tenants. You also lose if you buy in the fall and can’t replace the roof until spring. You may be better off accepting a lower rent than waiting for a higher-paying tenant.

• Mistake 4: Assuming you will sit back and watch the rent roll in.

“When you become a landlord, you become a rent collector,” says Mark Kreditor of Get There First Realty, which manages 1,600 rentals in the Dallas-Fort Worth area.

Just like homeowners who can’t pay the mortgage, tenants lose their jobs and stop paying the rent. Evicting them can take several weeks, and some steal appliances or other property. Mr. Kreditor says that once or twice a month, a tenant removes a home’s copper tubing on the way out the door to sell the copper for its meltdown value.

You will need to screen prospective tenants carefully—or pay someone to do it for you.

• Mistake 5: Underestimating repair costs.

As with all homes, you will be making lots of repairs. You may find wood rot or mold when you remove that cracked bathtub. Carpet in rental homes typically must be replaced every five years, and you may have to repaint after every tenant. Tony A. Drost, president of the National Association of Residential Property Managers, or Narpm, suggests setting aside six months of expenses so that you will have funds if a major repair is needed.

• Mistake 6: Assuming that owning a rental is the same as owning a home.

You might put up with flaws in a home that a renter wouldn’t tolerate. In addition, many states and communities have strict (and complex) laws for landlords, even if you own only one property. A property manager can handle most of the headaches, but you should expect to pay one up to a month of rent for finding and screening tenants—and up to 10% of the monthly rent for management fees.

You can find property managers through the websites of trade groups Narpm and the Institute of Real Estate Management. In addition, many communities have local Real Estate Investor Associations, which can provide support.

http://online.wsj.com/article/SB10001424053111904103404576558484074477822.html?mod=WSJ_RealEstate_LeftTopNews