Archive for March, 2009
Commercial Real Estate Investment Strategy For 2008
The dictionary definition for strategy is as follows: A plan of action or policy designed to achieve a major or overall aim. When applied to purchasing commercial real estate it means setting the rules for achieving the desired return on investment with the least risk.
Before we set any rules we need to know the current issues that will affect the value of commercial real estate. A perfunctory list would include the war in Iraq terrorism illegal immigration the trade imbalance energy dependence with unfriendly dictatorships nuclear proliferation the weak dollar a softer economy healthcare problems environmental issues a decline in educational performance a subprime credit crunch decreasing job creation a questionable future for social security increasing energy costs and tax reform. Not exactly a favorable climate for investing in commercial real estate.
When NetGain analyzes the business cycles for the last one hundred years history has shown that when compared to everything looking rosy now is a better time to invest. Today’s successful investors will be the ones who ignore naivety and greed. That said current times dictate that you don’t buy real estate using the greater fool theory there will be a greater fool than you who will buy the real estate from you. The present economic climate dictates that you adhere to sound economic guidelines. Following is a composite list of those guidelines that NetGain believes are a necessary requirement for successfully investing in commercial real estate for 2008.
Buy commercial real estate that has a positive spread. Positive spread means the capitalization rate is greater than the annual percentage rate APR cost for debt service. Negative spread is a guaranteed mathematical loss.
Do not use projected income when computing the capitalization rate. Use current collected income.
Do not use guaranteed income when computing the capitalization rate. Use market rate rents.
Do not extrapolate physical occupancy into income when computing the capitalization rate. Use economic collected occupancy.
Use current annual operating expenses when computing the capitalization rate. Do not use some shortterm amount that is amortized into an annual amount.
Include adequate operating expenses for a preventative maintenance program.
Factor in all the costs for renewing shortterm leases when computing the capitalization rate.
Do not buy commercial real estate with a negative cash flow. Buying commercial real estate with a negative cash flow is the same as buying a failing business.
Do not use the gross rent multiplier GRM as a leading indicator. Use it as a validating indicator.
Do not use replacement costs as a leading indicator. Use it as a validating indicator.
Set aside adequate reserves. Each property is unique as to age amenities lessees etc. The current cycle soft market or recession will pass and you do not want to run out of money before it ends.
Do not finance the property with a shortterm maturity.
Avoid a variable rate mortgage.
Use NetGain’s Economic Valuation System EVS. As the leading proactive due diligence system on the Internet it is a must when buying commercial real estate in today’s market climate.
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Casualty Loss
Casualty Loss Can Generate Massive Tax DeductionsA casualty loss may occur as a result of a flood hurricane tornado mudslide or other natural disaster. The intuitive thought pattern is: My apartment complex worth 5000000 suffered major damage totaling 1500000 for repairs and rent loss. Fortunately I was completely covered for both physical damage and rent loss other than a small deductible. There is clearly no casualty loss I can claim as a tax deduction right?
Tax deductions are the basis for tax reduction. Tax deductions reduce taxable income but do not directly reduce federal income taxes. For example 100000 of tax deductions reduces federal income taxes by 35000 100000 X 35 assuming a 35 tax rate. Most tax deductions require a cash expenditure labor material supplies utilities etc. A current period cash expenditure is not required for some real estate tax deductions and may not be required for a casualty loss. Most real estate owners and investors do not consider casualty losses as a source of tax deductions.Few investors claim the casualty loss tax deduction the federal income tax code allows them. Lets review the criteria for a casualty loss tax deduction and the thought process regarding acquisition of a property that has suffered a casualty. Real estate owners suffer a casualty loss when the market value immediately after the casualty plus insurance proceeds is less than the market value immediately before the casualty. The complex issue is how to value the property immediately after the casualty. Lets consider a 1story suburban office park in Mississippi which suffered 3feet of flooding due to Hurricane Katrina. Lets further assume: 1 8 feet of sheet rock must be replaced in the entire property to rebuild 2 although the property was 90 occupied before the flood occupancy is expected to only be 5 while rebuilding occurs 3 stabilized occupancy after renovation is not clear since some businesses may not return 4 construction will take 1218 months due to the labor constraints and 5 the owner has casualty insurance to rebuild but did not have rent loss/business interruption insurance. It is clear the market value after the casualty is less than the market value before the casualty less construction costs. Other factors to consider are: rent loss market risk that not enough tenants will be available after construction is completed cost of construction management a illiquid market with few buyers just after the casualty construction risk interest rate risk rates could rise during the construction period negatively affecting value risk that operating expenses could increase during the construction period perhaps insurance and compensation for entrepreneurial effort to induce a buyer to coordinate labor capital management and compensation for capital during the reconstruction and releasing process. A careful analysis by an appraiser might show the improvements have no value after the flood. In appraisal assignments performed by the writer a casualty loss of 1030 of the market value before the casualty has occurred in a straightforward defensible analysis is typical. This can generate a meaningful casualty loss and tax deduction. For example a property with a market value of 5000000 suffers a 30 casualty loss. While the casualty is a serious hardship for the owners the 1500000 5000000 X 30 tax deduction will mitigate the financial loss. Congress provided a casualty loss tax deduction to encourage investment in real estate. If you have the misfortune to suffer a casualty loss take the helping hand offered by congress and take the tax deduction. Click here for a FREE preliminary analysis of income tax savings for your property. Cost segregation produces tax deductions and reduces federal income taxes across the country and in every size market. Below are just a few examples of cities where cost segregation generates meaningful tax deductions. City:
- Memphis TN
- San Francisco CA
- New Orleans LA
- New York NY
- Hartford CT
- Las Vegas NV
- Los Angeles CA
- Atlanta GA
- Orlando FL
- Miami FL
- Louisville KY
- Salt Lake City UT
- Boise ID
- Lakeland FL
- Wichita KS
- McAllen TX
- Columbus OH
- Ft. Lauderdale FL
- San Antonio TX
- Durham NC
- Allentown PA
- Youngstown OH
- Little Rock AR
- Greensboro NC
- Greenville SC
- Kansas City MO
- Raleigh NC
- San Jose CA
- Palm Bay FL
- Honolulu HI
- Regional mall
- Service station
- Drugstore
- Night club
- Supermarket
- Racket club
- Auto service garage
- Airplane hangar
- Nursing home
- Subsidized housing
- Nondurable good wholesalers
- Durable good wholesalers
- Day care facilities
- Computer and electronic manufacturing
- Health care facilities
- Chemical manufacturing
- Printing activities
- Warehousing and storage
- Electronic and appliance stores
- Apparel manufacturing
O’Connor Associates is a national provider of commercial property real estate consulting services including cost segregation studies due diligence income tax abandonment studies business personal property valuations commercial appraisals feasibility studies highest and best use analyses and lease audits.
Our services benefit owners of all commercial property types including multifamily housing retail stores hospitals hotels industrial properties manufacturing facilities medical offices commercial offices restaurants selfstorage units shopping malls shopping plazas and warehouse/distribution centers.
About the writer: Patrick C. O’Connor has been president of O’Connor Associates since 1983 and is a recipient of the prestigious MAI designation from the Appraisal Institute. He is also a registered senior property tax consultant in the state of Texas and has written numerous articles in state and national publications on reducing property taxes. He continues to set the standard in direction and quality of our appraisal products adding services ranging from business valuations and business appraisals to cost segregation analysis for income tax reduction.
Unsecured Personal Cash Loan A Succour Without Any Collateral!
Secured personal cash loans can be availed by placing collateral against the loan amount while unsecured personal cash loans can be availed without any security. To avail secured short term loan you can place any of your personal property like car home bank account etc as collateral with the lender. This helps to reduce the interest rate on the loan. People suffering from bad credit history due to arrears defaults CCJ’s IVA bankruptcy etc can also avail the benefits of short term loans. If you want to keep your monthly installments small then opting for longer duration of repayment can be beneficial. Interest rate of short term cash loans depends upon type of loan you want to avail that is secured or unsecured. Secured short term cash loan carries lower interest rate compared to unsecured short term cash loans.
No credit check unsecured cash loans help such people in dealing with such depressing situation and provide them with suitable financial assistance without any obligation. Since No credit check unsecured loans do not include any credit check the borrower can expect fast processing of his or her loan request.
Uk online unsecured cash loan usage!
The loaned amount is dispatched electronically to the borrower’s bank account within 24 hours for timely use. But the borrowers should be holding a job earning a fixed monthly salary and must be having a valid bank account in his or her name. In case your credits are affected dont worry. Apply for an unsecured personal cash loan which will not only help your meet your urgent needs but also acts as repair factor. One can say that the loan can be a tool for improving your affected credit rating. However you should apply for these loans after making an extensive search for a suitable deal. Bad credit unsecured personal loans are especially crafted for people with a poor credit rating. So if you have a poor credit rating you need not worry about financing your needs.
Such guaranteed unsecured loans can be used to finance any kind of your needs. Whether you have to finance a marriage or you have to buy a new home you can always finance your needs by opting for the guaranteed unsecured personal loans. But be mindful of certain factors before applying for one. Things to consider are the time period for repayment penalties if you pay the loan off too quickly what are the late fees is the interest rate variable or fixed and what is the APR? Unsecured loans usually let an individual borrow less than a secured loan. The interest rate is usually higher for an unsecured loan.
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