Posts Tagged ‘Investment Strategy’

4 Important Questions to Ask Yourself Before Purchasing a Vacation Rental Home for Income

Written by Landlord Property Management Magazine on . Posted in Blog

By Rob Stephens

Interested in renting out your yurt, tiny house or couch? Now there are several options homeowners have to make extra income. For those looking to purchase a second home, often called a vacation rental home, renting out to vacationers is a great way to afford purchasing an additional property. Not to mention, for a growing number of travelers, renting a private home is the only way to go and typically offers more choices, comfort and privacy than hotels, and often cost less as well.

Multifamily Demographics: People, Markets & Cities

Written by Landlord Property Management Magazine on . Posted in Blog

by John Wilhoit

Prior to analyzing financials for a potential multifamily acquisition, there are two things we must know about a property; what and where.   What type of property, in terms of quality, and where it is located?  Without first distinguishing some characteristics about what and where there is no reason to devote time to a review of income and expenses.   In this article we will look at the where.

Why Debt Can Hurt You: DST 1031 Exchange Property Market Insights – Example DST 1031 Case Study

Written by Landlord Property Management Magazine on . Posted in Blog

By Chay Lapin, Senior Vice President, Kay Properties & Investments

Recently a client in a 1031 Exchange with $4,000,000 of equity was working with another registered representative and talking to a sponsor directly. In talking with Kay Properties and Investments, they learned that we specialize in DST 1031 Exchanges and that we have access to a variety of DST properties from many DST sponsor companies throughout the industry.

After we hosted the family at our Los Angeles Headquarters and they had a chance to visit with our team, we learned more about their situation.

The building they were selling was debt free. In this scenario, the client could go into DSTs that are debt free with no mortgage. This means that these DST properties could never be foreclosed on by a lender and do not carry the risk of mortgage maturity and refinancing.

BEWARE. Fed Rate Hike Could Burst Bubbles

Written by Landlord Property Management Magazine on . Posted in Blog

By Kathy Fettke | RealWealthNetwork.com

FedRateHike

The Federal Reserve followed through on its latest promise to raise interest rates. Fed Chief Janet Yellen announced a quarter point hike in the federal funds rate Wednesday. But the increase has little to do with the ripple effect on mortgages and consumer loans, and more to do with a message from the Fed about the economy.

This is the first rate hike of 2017 and the third since December of 2015 when the cycle of monetary tightening began after the Great Recession. The first rate hike brought the overnight lending rate a quarter percent off zero. The second rate hike three months ago, raised it another quarter point. The latest increase brought it to a range of 0.75% to 1%, which is still quite low historically.

Consumer loans may notch up a bit because of the rate hike but economists say with so much talk about the increase, many lenders have already priced it in. And some economists say the hike has more to do with Yellen’s desire to portray the economy as “healthy” than it does with monetary policy.

She said during a press briefing: “We have confidence in the robustness of the economy and its resilience to shocks.” And that: “It’s performed well over the past several years. We’ve created, since the trough in employment after the financial crisis, around 16 million jobs.”

Raising the Fed Fund rate is supposed to correspond with a robust economy. Increases are meant to keep inflation in check. If economic growth and inflation are rising too quickly, a rate hike helps slow them down as it tightens the money supply.

Core inflation is about 1.9% right now. Up slightly from the previous forecast and right in the 2% range that the Federal Reserve has been targeting.

But there are big questions about U.S. economic growth.

If you focus on the stock market, you might think the economy has been advancing rapidly. Wall Street has been on a bull run since President Trump was elected with the Dow hitting over 21,000 for the first time ever.

There’s also been a steady increase in jobs with unemployment dropping from the double digits during the recession to under 4.7% right now. That’s giving consumers confidence about the economy, despite flat wages. The February report on consumer confidence says it hit a 15-year-high of 114.8.

But what some economists are pointing out is the troubling lack of economic growth. Chief investment strategist at Clarity Financial, Lance Roberts, wrote in a blog, that: “Outside of inflated asset prices, there is little evidence of real economic growth.” And that’s one thing that Janet Yellen said a rate hike would be tied to — economic growth.

The gross domestic product, or GDP, is our economic report card. And the Atlanta Fed just downgraded the first-quarter GDP to just .8%. That’s well off the 2% that Janet Yellen said is needed for a rate hike, leaving some economists wondering why the central bank went ahead and approved the increase.

Just weeks ago, the GDP was closer to the central banks rate hike comfort zone, at 2.3%. It also increased to 3.4% briefly last month after positive news about manufacturing and construction spending. But when disappointing data on retail sales and consumer prices came out a few days ago, the Atlanta Fed lowered its estimate to the .8% level.

Roberts says that charts show a rate hike at a time like this could actually push us into another recession. He told Market Watch that raising interest rates from ultra low levels at a time of slow economic growth could impact spending and that charts show this type of situation has lead to recessions in the past within three to nine months.

Nobel Prize-winning economist Robert Schiller is also warning people that Wall Street exuberance has gone overboard. He told Bloomberg that traders are captivated by President Trump’s bold plans to slash regulations, cut taxes, and “turbo-charge” the economy with an infrastructure building-boom.

He warns that when situations like this have happened in the past, it hasn’t ended well for the investors. Think dot-com bust and housing meltdown. Both experienced sharp drops in the stock market.

Schiller says investors are shoveling money into the market with the hope that President Trump will make good on his campaign promises. But they are also ignoring the enormous amount of uncertainty associated with getting those new policies through Congress and the legal system.

The Trump Administration is proposing some extreme budget cuts that may not sit well with some of his own constituents. A preliminary budget was introduced that slashes $54 billion from most federal agencies including the EPA, HUD, and Health & Human Services. That money will then be spent on defense. There’s also the affect of the Obamacare repeal. Depending on how many people lost their healthcare coverage, there could be a lot of unhappy voters. And if this political turmoil jostles the stock market, we could see a reversal that could happen quickly, and without mercy.

There has never been a slow letting out of air from a bubble. It usually bursts.

Kendrick Wakeman, the CEO of financial technology and investment analytics firm FinMason, told CNBC that investors are in for a rude awakening. He says no one knows when the stock market correction is coming. But, he says on average, the stock market crashes every eight to 10 years. And when it does, the average loss is about 42%.

He told CNBC that stock market investors need to ask themselves: “Would you hang yourself in the closet if the market crashed and you lost 35 percent?”

I have been warning investors for over a year now that a recession is coming. I’m sure some people think I’m crazy since the stock market has made significant gains since I gave this warning.

But remember, the same thing happened before the Great Recession and the Great Depression. In January of 2008, Ben Bernanke, the Chairman of the Fed said, “The Federal Reserve is not currently forecasting a recession.” 9 months laterin September of 2008, Lehman Brothers collapsed and the financial markets worldwide came tumbling down.

The Federal Reserve is supposed to be in charge of regulating the economy. It’s terrifying that they couldn’t see that recession coming… and even more frightening that they may have seen it coming, but didn’t warn us.

Be extremely defensive in your investing strategies today. Make financial decisions as if it were 2006. People who were prepared fared very well during the subsequent recession.

Rising interest rates can be the exact prick needed to pop the stock market bubble. That may be the very reason the Fed is raising rates – to slow down the irrational exuberance that taking the bubble to new heights.

A slowdown could turn into a meltdown, depending on how big that bubble has become.

How would a slow down in stocks affect real estate?

1. Cities that are more dependent on stock market fluctuations would be more affected by a stock market crash (SF, NY, Seattle).

2. Mortgage interest rates would decline if there were a correction in the stock market as more investors flock to the safety of bonds – which are more tied to the 10 year Treasury bond market.

3. Commercial real estate would get hammered while landlords could fare well as more people are forced to rent, driving rents up.

Now would be a very good time to “cash out” and sell your high priced assets while the market is hot. You can exchange those properties for low-priced, high cash flow properties in recession-proof markets.

If you have concerns about your portfolio or would like to speak with one of our investment counselors about how to find out which markets are best for investing today, visit www.RealWealthNetwork.com.

Kathy is an active real estate investor, licensed Realtor, certified coach, and former mortgage broker. She specializes in helping people build multi-million dollar real estate portfolios through creative finance and planning. With a passion for researching and sharing the most important facts on real estate and economics, Kathy is a frequent guest expert on such media as CNN, CNBC, Fox News, NPR, CBS MarketWatch and the Wall Street Journal. She is the author of the #1 best seller, Retire Rich with Rentals, and is host of The Real Wealth Show – which is a featured podcast on iTunes with listeners in 27 different countries.

What Are the Potential Benefits of Exchanging into a Delaware Statutory Trust Property?

Written by Landlord Property Management Magazine on . Posted in Blog

By Dwight Kay | www.kpi1031.com

dstproperty_1

There are a number of potential benefits of exchanging into a Delaware Statutory Trust (DST) 1031 property. It is important to note that these should be carefully weighed with the potential risks that we have outlined at the end of this article. You should also read the risk section of each DST 1031 property’s offering materials in detail prior to investing.

Eliminating the day-to-day headaches of property management
Many of our clients are at or near retirement, and they are tired of the hassles that real estate ownership and management often bring. They are tired of the tenants, toilets and trash and are wanting to move away from actively managing properties. The DST 1031 property provides a passive ownership structure, allowing them to enjoy retirement, grandkids, travel and leisure, as well as to focus on other things that they are more passionate about instead of property management headaches.

Tax deferral using the 1031 exchange
Many of our clients have wanted to sell their apartments, rentals and commercial properties for years but haven’t been able to find a property to exchange into and just can’t stomach the tax bill after adding up federal capital gains tax, state capital gains tax, depreciation recapture tax and the Medicare surtax. The DST 1031 property solution provides investors an ability to move from an active to a passive role of real estate ownership on a tax-deferred basis.

Increased cash flow potential
Many investors are receiving a lower amount of cash flow on their current properties than they could be, due to their properties having under-market rents, properties that have multiple vacancies and/or that are raw or vacant land sitting idle. DST 1031 exchange properties provide an opportunity for investors to potentially increase their cash flow on their real estate holdings via a tax deferred 1031 exchange.

Portfolio diversification by geography and property types
Often times, 1031 investors are selling a property that comprises a substantial amount of their net worth. They want to reduce their potential risk and instead of buying one property (such as another apartment building) or one NNN building (such as a Walgreens pharmacy or Taco Bell restaurant) they decide that investing into a diversified portfolio of DST 1031 properties with multiple locations, asset classes (property types) and tenants is a better fit for their goals and objectives.

This is similar to how investors tend to invest retirement funds in mutual funds and Exchange Traded Funds (ETFs), as opposed to placing their entire retirement savings into the stock of one particular company. However, it is important to note that there are no assurances that diversification will produce profits or guarantee against loss.

Long-term non-recourse financing locked and in place to satisfy debt replacement requirements of the 1031 exchange
One of the requirements for a 1031 exchange is to take on “equal or greater debt” in the replacement property to what you had in the relinquished property (the property you are selling). In today’s lending environment, it is often hard for investors to obtain non-recourse financing at an acceptable interest rate and terms. Due to the DST 1031 properties’ sponsors typically having strong lending relationships, they are able to secure non-recourse financing at some of the best terms available in the marketplace. The DST 1031 investors are the direct recipient of these financing terms that they would otherwise often not be able to obtain on their own.

Access to Institutional Grade Real Estate
DST 1031 properties provide access to large, institutional-grade real estate that is often otherwise outside of an individual investor’s price point. With the typical minimum investment of $100,000, investors are still able to purchase an ownership interest in large $20 million-plus apartment communities, $5 million-plus pharmacies or $15 million grocery stores, for example. This allows investors access to a level of real estate that they just would not have been able to exchange into before.

That being said, we also have had many clients with very large 1031 exchanges opt to invest in DST 1031 properties because they did not want to place “all their eggs into one basket” by purchasing one single, large investment property.

Unlocking trapped equity
For those investors that have a substantial amount of equity in raw or unimproved land (as well as investors with vacant properties that are not producing any cash flow), the DST 1031 property allows them the opportunity to sell, defer taxes via a 1031 exchange and unlock the trapped equity that they have in their properties. Now this trapped equity is free to produce for the investor potential cash flow on a monthly basis.

Ability to typically close on a DST 1031 property typically within three to five business days of completing and returning subscription documents
This is one of the main reasons why investors in their 45-day identification period “time crunch” often turn to DST properties. They are able to close quickly and complete their exchanges due to the properties being pre- packaged, as opposed to waiting 30, 60 or 90 days to purchase another outside property.

Increased tax efficiency due to depreciation deductions on replacement property
Investors that have owned their apartments and rental properties for longer than 27.5 years and commercial properties for longer than 39 years have fully depreciated the properties, with no more deductions to help shelter the rental income. By purchasing DST 1031 properties that have a greater amount of financing than their relinquished (sold) properties, those investors are creating for themselves a new basis to shelter rental income through. We encourage all investors to speak with their CPA and tax attorney regarding this prior to investing in DST 1031 properties for details regarding their particular situation.

Increased tax efficiency due to interest write-offs
For investors that have fully paid off their properties, the DST 1031 properties with financing in place provide for interest write-offs to help shelter potential cash flows. Many clients in today’s environment are looking for a way to increase tax efficiency due to the burdensome tax system in place in the United States. The DST 1031 can help to potentially solve some of these tax problems.

Dwight Kay

CEO and Founder

Dwight Kay is the Founder and CEO of Kay Properties and Investments, LLC (Kay Properties). Kay Properties is a provider of DST brokerage and advisory services headquartered in Los Angeles, CA with an office in New York, NY. Registered Representatives at Kay Properties and Investments specialize in helping 1031 exchange clients throughout the country purchase DST properties and are securities licensed in all 50 states, Washington D.C. and the U.S. Virgin Islands. Mr. Kay has personally been involved in over $200,000,000 of client purchases of DST properties and other securitized real estate products.

kpi-real-estate-investment-3d_smallDwight is a published author with multiple published white papers and articles on 1031 exchanges, Delaware Statutory Trust (DST) properties and real estate securities. He has been interviewed on local and nationally syndicated radio stations on the matters of 1031 exchanges and replacement properties. He also is the author of the published book “Delaware Statutory Trust (DST) Properties: An Introduction to DST Properties for 1031 Exchange Investors.”

Dwight began his career in commercial real estate working for a national commercial real estate brokerage firm focusing on multifamily and commercial real estate. Mr. Kay received his Bachelors in Business Administration from Point Loma Nazarene University in San Diego, California, and successfully obtained his Series 7, 22, and 63 securities licenses as well as a real estate broker’s license.

Risks & Disclosures

This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please be aware that this material cannot and does not replace the Memorandum and is qualified in its entirety by the Memorandum.

This material is not intended as tax or legal advice so please do speak with your attorney and CPA prior to considering an investment.

This website contains information that has been obtained from sources believed to be reliable. However, Kay Properties and Investments, LLC, Colorado Financial Services Corporation and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment.

There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) and 1031 Exchange properties. These include, but are not limited to, tenant vacancies; declining market values; potential loss of entire investment principal; that past performance is not a guarantee of future results; that potential cash flow, potential returns, and potential appreciation are not guaranteed in any way; adverse tax consequences and that real estate is typically an illiquid investment.

Please read carefully the Memorandum and/or investment prospectus in its entirety before making an investment decision. Please pay careful attention to the “Risk” section of the PPM/Prospectus. This material is not intended as tax or legal advice so please do speak with your attorney and CPA prior to considering an investment.

IRC Section 1031, IRC Section 1033, and IRC Section 721 are complex tax codes, therefore, you should consult your tax and legal professional for details regarding your situation.

Securities offered through registered representatives of Colorado Financial Service Corporation, Member FINRA / SIPC. Kay Properties and Investments, LLC and Colorado Financial Service Corporation are separate entities. OSJ Address: 304 Inverness Way S, Ste 355, Centennial, Colorado. 303-962-7267.

Kay Properties & Investments, LLC, is registered to sell securities in all 50 states.

DST 1031 properties are only available to accredited investors (generally described as having a net worth of over $1 million dollars exclusive of primary residence) and accredited entities only (generally described as an entity owned entirely by accredited individuals and/or an entity with gross assets of greater than $5 million dollars). If you are unsure if you are an accredited investor and/or an accredited entity please verify with your CPA and Attorney prior to considering an investment. You may be required to verify your status as an accredited investor.

Six Reasons Why Investing in Multi-Family Housing is a Smart Move

Written by Landlord Property Management Magazine on . Posted in Blog

Shared post from cashflowdiary.com

mf investing

People ask me all the time if they should invest in Multi-Family Properties. If you’re one of them, my answer is ABSOLUTELY… but only if it fits your Investor Identity. The truth is though, that it has to be right for you. To help you understand that part, you first need to understand the many benefits.

Investing in multi-family properties is one of the most powerful investment strategies you can use to create astounding and consistent cashflow month after month. But that’s just one reason to invest in multi-family housing.

Here are six more:

1) Multiple Properties Under One Roof Means Easier Management

What’s more attractive… 12 single-family homes spread out across a city to manage, or 12 units under one roof? With the 12 individual properties, you may need more than one property manager; with the one building you only need one manager.

Now let’s say you have a 72-unit building. You still only need one manager on site or one property management company that will handle rent collection, tenant issues, and grounds and other management duties.

Finding a great property manager means you have to ask the right questions, and you always want to have a plan B in case the property manager or management company doesn’t work out.

Make sure you never have a single point of failure.

2) Forcing and Phasing Appreciation in Multi-Family Properties is Easier Compared to Single-Family Housing

Appreciation rarely just happens. You have to do specific things to force the value of a property up or phase in amenities and benefits to tenants which will push the appreciation up.

In single-family housing, you don’t have as many options with these activities, because there’s only so much you can do.

In a single-family home, you can slap some lipstick on the property to give it more curb appeal, or you can do a deeper rehab to make the property more functional. However, you are doing this to force the appreciation on ONE property only.

When you give your apartment building (or even a 4-plex or 8-plex) more curb appeal, fix things in the property that make it more appealing as a living space for tenants, add a nice laundry room or business to the property (if we’re talking about more than 12 doors), or revitalize a useless space to create something that is a benefit to tenants, and you will push up the value of the property exponentially. You will attract tenants to your building vs. another landlord’s building. That’s what you want. Plus, you’re creating more and steadier cashflow, because your tenants will want to stay.

3) You Can Create Even More Cashflow in The Multi-Family Property

This is pretty exciting stuff, because there are ways to create cashflow beyond rents. Take the last point, for example.

What if you add a nice laundry facility to the property? Say you have a one-bedroom unit or a studio apartment in your building that you know will only invite transient tenants. What can that space become that will generate even more income month after month?

A safe, clean, well-lit laundry room with decent coin-operated machines can be a great idea. It benefits the tenants who don’t have washers and dryers in their units and would normally have to lug their laundry to the nearby Laundromat. Why make them do that when they could have the laundry room on the property? They are using coins either way. Why not let them feed those coins into your machines? The cost of the machines will be covered quickly, and you can get great deals through bulk purchasing.

Make the space clean and safe. Consider adding a security camera to keep out any bad elements, and you have a winner. In fact, that’s called a win-win. You win; your tenants win. You’re creating a space that raises the quality of your tenants’ lives, which feels really good. (The laundry room is just ONE thing you can add. There are many more amenities to add that bring additional cashflow in a variety of ways.)

4) There Are Great Tax Breaks that Come with Investing in Multi-Family Properties

When you provide housing it’s a good thing. The government thinks so, too.

The city in which the property is located likes the idea, because you are helping the residents of that city by providing clean, safe, affordable housing to people who might not otherwise find it.

As a result, you can gain all sorts of tax incentives… also known as tax breaks. You can take a whole lot of deductions because this is a business. You are running a business of Real Estate Investing. You can depreciate all sorts of things in an apartment building or rental property, and that depreciation takes place over more than two decades… sometimes three decades, depending on whether the property is classified as residential or commercial. The size of the property and other factors dictate the classification.

The long and short of it is that when you invest in multi-family properties, you’ll want to get a very competent CPA and/or CFO to help you get as many deductions and tax incentives possible. It could be that you can even get government grants to offset upfront costs. The benefits on this side can be massive. You could end up paying zero property taxes. That would save you money in a big way, right?

5) Multi-Family Properties Hold Their Value

Once the property is rehabbed, and you’ve made it attractive to tenants, it will also attract other investors who will be interested in buying the property later (if you ever want to sell). You’ve put in place everything required to attract and retain tenants. That means steady cashflow, which is mighty appealing to investors.

You have to make sure to maintain your property so it retains its value over the long haul. The grounds must be kept up, minor repairs performed in your ongoing maintenance plan, and really good maintenance people must be in place. Find the best by asking the best questions. Do you due diligence on the people wanting to work for you.

You want maintenance people and grounds keepers who share your desire to provide clean, safe housing. That’s part of what they are responsible for… maintaining a good living space for the tenants. You need to learn the difference in workers’ mindsets. It’s a sure bet that theirs will reflect yours. You want motivated workers. Learn how to adequately motivate them to not just care for the property but also care about the people living there.

6) Investing in Multi-Family Housing Allows You to Change Lives

If you create a space where families can thrive, that’s a perk. You could go into Wal-Mart-type areas where you see lots of opportunities for improvement. In apartment buildings and smaller multi-family properties, you’ll see opportunity in the form of boarded-up windows, overgrowth of the grounds, graffiti, messed up swimming pools, filthy laundry rooms and dwellings that need a whole lot of help.

How good would it feel to get that property, rehab it, solve the problems, attract families that need clean, safe, affordable housing, and then positively impact whole zip codes? You can do exactly that if you have the commitment and the right teams in place to help you through the rehab process. You’ll need other team members, too, but you can learn what that looks like before you begin.

Obviously, investing in Wal-Mart-type areas isn’t for everyone. Fortunately, there are plenty of other levels in the multi-family investing space. You can find properties that fit your Investor Identity. Then you can affect change, and earn great cashflow at the same time. That’s a great accomplishment.

Knowing that you have the ability to change lives is something that makes you feel good.

Tax Alert! New Proposed IRC 2407 Regulations May Impact Your Estate Planning Strategy

Written by Landlord Property Management Magazine on . Posted in Blog

By Michael Trainotti

TaxAlert

It has been over two weeks since the U.S. Treasury Department issued on August 4, 2016 proposed regulations under Internal Revenue Code Section 2704 that, when finalized, may substantially increase your wealth transfer taxes by blocking a common estate planning strategy. The new regulations would only apply to individuals whose family assets are more than $5,450,00 or married couples above $10,900,000.

Some commentators believe that if they are finalized this would be the most significant change in the estate planning area since 1986.  You may have read that planning ahead is key. Since the new regulations will not be finalized until early next year, everyone who would be subject to estate taxes should strongly be thinking about making gifts this year based upon the planning example below that will not be available after the new regulations are finalized.

Historically, taxpayers could reduce the value of their taxable estates by placing assets in partnerships, LLCs or closely held corporations and claiming lack of marketability and/or lack of control discounts. These discounts typically reduced the value of the ownership interests by 25% to 45%.

Thus, for example, placing $10 million worth of assets inside a closely-held entity might reduce the value of the estate by $2.5 million to $4.5 million and, given the current 40% estate tax rate, reduce the estate tax payable by $1 million to $1.8 million.

The above example is also true for making current gifts or sale of assets that you believe will appreciate in value over your life expectancy.  Gifting or selling of assets freezes the value of your assets today and shifts the appreciation to other family members.  The sale concept is true for the sale of assets to children, especially if there is a sale to a grantor trust where there is no recognition of income or the assets sold has a high basis and no or little income tax is recognized.

I will be preparing an article shortly explaining in more detail some of the planning opportunities that can be key if the new regulations are finalized. I want to point out that there have already been comments that the proposed regulations in current form, if finalized, may violate the congressional legislative history of allowing discounts, ignoring state law provisions governing business entities and general valuation principals occurring daily in the marketplace.  If that is the case, legal challenges will be a certainty.

You should contact your advisor(s) regarding whether or not the new proposed regulations may have any impact on your family assets if they become finalized.

Don’t miss this Important Tax Article in the September 2016 Issue of Landlord Property Management Magazine!

Michael Trainotti, Inc., A Law Corp
400 Oceangate, Suite 520
Long Beach, CA 90802
Work: (562) 590-8621
Fax: (562) 590-8181
email: mike@trainottilaw.com
website: www.trainottilaw.com

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