Tuesday, January 28, 2020

         News      
The Cal State Companies:  Center for Real Estate Studies ¨ Cal State Properties ¨ Cal State Investment LTD Partnership
¨E-Mail CalStatecompanie@aol.com  ¨ Webpage http://www.calstatecompanies.com


How to Pick the “Right”
 Property Manager

The following  is what you need to know before you hire someone to manager your property:







Be Wary of “Mom-and-Pop” Operations

            I prefer to use a medium-size property management company, rather than a “mom-and-pop” company. These kinds of operations usually don’t have the staff to do an adequate job. In addition to managing smaller units, they are typically involved with real estate brokering.   I’ve actually seen these operators give prospective tenants the key to a vacant unit, rather than showing it themselves. This type of marketing effort won’t do if you’re trying to keep vacancies down.

Be Just as Wary of the “Giants” in the Field

            Larger property management firms are geared to institutional investors. Midsize apartment buildings somehow get lost in the shuffle.  Individual attention suffers. The needs of your building might have to wait until those of a much larger complex are met. Your building might be assigned to a new or relatively inexperienced property supervisor to provide training.

Procedure Manuals Are Critical

            Ask to see the operations or procedure manual of the firm. Read it and ask questions. You’ll get a clear indication of how a property management company manages apartment complexes from the manual. Be leery of the company that doesn’t have one. In fact, do not consider using a company unless they have a formal plan on how they manage apartment buildings.

What to Expect from Your Property Manager

            Under no circumstances should you run the day-to-day management operations. Your role is to properly monitor the project in order to establish effective policies and to make management decisions.

            What support should your property management company provide?  Ideally, they should be able to provide all services in the areas of acquisition, operation, and disposition of your property.

            After you’ve pinpointed possible property locations, a good property management company should be able to give statistical, as well as subjective, information concerning socioeconomic, political, and developmental conditions. A quality firm should be capable of preparing physical inspection reports, capital improvement requirements, and an effective operations budget.

            During the operations phase, a competent property management company will issue timely monthly operating reports that compare actual income and expenses to budgets. They should be able to give you a detailed explanation of any major variances, and their representative should meet with you periodically.

            During the sale phase of your property, your management firm should be able to communicate with the potential buyers on your behalf regarding the building, and to assist in various inspections. They should have no problem providing these services because it gives them the opportunity to display their own expertise to the new buyers.

Controlling Property Management Fees

            How much should you pay a property management firm? Payment should be based on the various tasks you want performed. In assisting you with the acquisition, you should contract out on an hourly basis that’s comparable in the area. Under no circumstances agree to an inspection contingent on signing a management contract. You can readily see where this could lead. More property managed equates to more in-come, a flagrant conflict of interest. Work with a reputable company, one that won’t recommend you buy the building just to get the management contract.

             higher percentage than larger ones. Re-member, management fees are always negotiable. There are no fixed rates. Make sure all services and related costs are spelled out in writing before you enter into a management contract.

            It is important to note that fees based on the percentage of rents collected should not include other items such as total cash collected, projected rents, gross possible rents, security deposits, and laundry income, for example. Be careful. Know exactly what the rate is and how it’s applied.

            If you want to give additional incentive to the property management company, offer them a bonus based on the building’s performance. It could be based on net operating income or the overall improvement of the complex over a period of time, usually one year.



ABOUT THE AUTHOR: Eugene E. Vollucci,  is considered to be one of the foremost authorities on real estate taxation and  investing and has authored books in these fields published by John Wiley & Sons of New York. He is the Director of the Center for RE Studies, a real estate research organization. To learn more about the Center, please visit our web site at http://www.calstatecompanies.com

Thursday, January 9, 2020

         News      
The Cal State Companies:  Center for Real Estate Studies ¨ Cal State Properties ¨ Cal State Investment LTD Partnership
¨E-Mail CalStatecompanie@aol.com  ¨ Webpage http://www.calstatecompanies.com




Just Released Leading Rental Income Markets 4th Quarter 2019


            LOS ANGELES, CA. The Center for Real Estate Studies (CRES) research report has just released their fourth quarter 2019 issue of “Market Cycles".  It gives a forward look at more than 150 income rental markets with “buy, sell or hold” recommendations. This publication gives the real estate investor a two-year head start on where and when to invest in rental income properties.
 
            The current number of markets in the “Sell Phase” is forty, according to Eugene E. Vollucci, Director of CRES.  The number of markets in the “Buy Phase” is twenty. Mr. Vollucci states, “This quarter the three top buy recommendations are Austin, TX, Louisville, KY, Minneapolis, MN. The three top sell recommendations are Honolulu, HI, McAllen, TX and El Paso, TX.” according to Mr. Vollucci.
 
            In this edition of our Market Cycles, we find the fourth quarter 2019 rental vacancy rate outside MSAs (Metropolitan Statistical Areas) was higher than in the suburbs, but not statistically different from the rate in principal cities The rental vacancy rate outside MSAs was lower than in the third quarter 2018, while rates in principal cities and in the suburbs were not statistically different from third quarter 2018 rates. 
            
            Unemployment rates were lower in November than a year earlier in 223 of the 389 metropolitan areas, higher in 137 areas, and unchanged in 29 areas, the   U.S. Bureau of Labor Statistics reported today. 153 areas had jobless rates of less than 3.0 percent and 2 areas had rates of at least 10.0 percent. Nonfarm payroll employment increased over the year in 51 metropolitan areas and was essentially unchanged in the remaining 338 areas. The national unemployment rate in November was 3.3 percent, not seasonally adjusted, little changed from a year earlier.
 
            Real estate gains on residential property according to S&P’s over the last 10 years were up 3.4%. A booming economy, but insufficient homebuilding made property owners rich. 
 
            Approximately 328,000 new units are needed in the U.S. each year just to keep up with demand. That figure has only been realized twice since the late 1980s, in 2017 (the peak year for completions) and 2018 and is on track to make it in 2019, according to CoStar. Although some segments of the market may be approaching overbuilt status (luxury, urban core, specific submarkets), supply is still falling far short of demand in many areas across the country. In 2018 and 2019, absorption outstripped demand by an estimated 73,400 units and the current pipeline for 2020 shows fewer units coming on-line than 2019.
 
            In a recent Freddie Mac survey, homeowners and renters fifty-five and older learned that an estimated 6 million homeowners and nearly as many renters prefer to move again and rent at some point. Of those homeowners and renters that expect to move again, over 5 million indicate they are likely to rent by 2020.
 
            This is just another indication of the growing pressure on already tight rental inventories and the significant challenges to housing affordability in the coming years. While estimates vary, we can expect a shortage of needed affordable rental units that will run into the millions. As such, the affordability gap will spread much wider than it is today.
 
 
ABOUT THE AUTHOR: Eugene E. Vollucci,  is considered to be one of the foremost authorities on real estate taxation and  investing and has authored books in these fields published by John Wiley & Sons of New York. He is the Director of the Center for RE Studies, a real estate research organization. To learn more about the Center, please visit our web site at http://www.calstatecompanies.com



Monday, December 16, 2019



         News      
The Cal State Companies:  Center for Real Estate Studies ¨ Cal State Properties ¨ Cal State Investment LTD Partnership
¨E-Mail CalStatecompanie@aol.com  ¨ Webpage http://www.calstatecompanies.com



Real Estate Investments-A Year Ahead

          As we move into the year ahead, there is a general acceptance that we are at a point where long-term economic growth in the real estate industry will be slower, but sustainable.
          The word is that the year ahead is ideal for real estate investments because many investors are searching for safe havens for their capital. Real estate offers stable returns compared to other investments making it the “right” choice. However, there are several areas to watch as we approach the New Year. It is important to remember to diversify your real estate investments when navigating both certain and uncertain times. The Center for Real Estate Studies can help you do that with our monthly research reports and quarterly research report MARKET CYCLES.

          The past year has been filled with various forms of uncertainty. The one thing that seems certain is that companies are less likely to make growth plans and
capital investments in the face of such uncertainty. With presidential elections in 2020 and  banks willing to accommodate, we expect a softening of economic activity.

          The driving force remains domestic demand, especially private consumption, based on our strong labor market, which is operating close to full employment. The path for economic activity and risks has become unusually dependent on the ability of our administration to avoid an outright trade war with China. We believe the bank’s easing of interest rates will be strong enough to avert a slowdown in economic growth, prolonging the current economic expansion and supporting earnings growth

          The U.S. economy is doing quite well right now, but it could falter over the next couple of years as the stimulus fades away, said Paul Ashworth, chief U.S. economist for Capital Economics, and the winner of the Forecaster of the Month award for March.
          “We’ve been optimistic,” Ashworth said in a telephone interview. He and his colleagues had long assumed that the united Republican government in Washington would deliver a “sizable fiscal stimulus” and they were right. The tax cuts and the end of spending restraints should give the economy a nice boost this year and into next. Nevertheless, what happens next? “We are concerned with fiscal stimulus wearing off,” Ashworth said. He expects a “weaker” 2019 and 2020. Indeed, Capital Economics expects the Federal Reserve to be cutting rates in 2020.
         
          “The Fed’s economic projections, which envisage the economy growing above trend all the way out to 2020, strike us as far too upbeat,” wrote senior U.S. economist Michael Pearce in a recent note to clients. “The fiscal stimulus will provide a one-off boost to incomes and spending, but unless it expands the supply capacity of the economy, growth will inevitably fall back.”
          The economists expect only “a modest downturn that’s quickly reversed” in 2020, but of course the expansion has to end sometime. By then, it will be the longest expansion in U.S. history. “We stress to clients that they should think of the next downturn,” Ashworth said. “We expect it to be short-lived, with less permanent scarring” than from the Great Recession of 2008-09.
          We believe that the best way to hedge against the uncertainty in the year ahead is to invest in midsize apartments in “Pockets of Opportunity’ as reported in our quarterly research report Market Cycles.
 

ABOUT THE AUTHOR: Eugene E. Vollucci,  is considered to be one of the foremost authorities on real estate taxation and  investing and has authored books in these fields published by John Wiley & Sons of New York. He is the Director of the Center for RE Studies, an educational and research organization. To learn more about the Center, please visit our web site at http://www.calstatecompanies.com



Friday, November 15, 2019



         News      
The Cal State Companies:  Center for Real Estate Studies ¨ Cal State Properties ¨ Cal State Investment LTD Partnership
¨E-Mail CalStatecompanie@aol.com  ¨ Webpage http://www.calstatecompanies.com



Real Estate Investment Outlook November 2019


          We at the Center For Real Estate Studies continue to hold a middle-of-the-road position for the real estate investment markets. There are signs of softening in our economy and monetary policy. The Federal Chairman, Jerome Powell,   is likely to evaluate economic data before additional rate cuts.

          With strong private consumption and the strength of the service sector, which accounts for more than three-fourths of our gross domestic product (GDP), he may be forced to cut rates even further if a resolution of the trade dispute between the US and China is again delayed. The Feds might return to buying short-term Treasury bills, given the looming budget deficit, which is expected to rise to -4% of GDP in 2020

          A recession is still highly unlikely, given strong domestic economic factors such as private consumption and low and declining unemployment. So far, the sluggishness in manufacturing has not spread into the service industry, and we believe that the momentum of job creation could be maintained in the service-producing economy.  Although real estate valuations appear somewhat stretched in some markets, the prospects of a solid economic cycle may justify our current thinking. In addition, the real estate markets proved to be resilient against rising volatility during the mayhem of 2011 and 2015.

          Because of the sluggishness of our manufacturing, the United States Dollar (USD) is appreciating against European Currency.  In Europe, for instance, a lack of real alternatives for investors is proving to be the main driver of USD strength. Elsewhere, the high level of uncertainty over the US-China trade talks is exerting pressure on the Chinese Yuan, thus strengthening the USD. The net upshot is less European and Chinese real estate investment being made in our country.

            One may argue that rate cuts may weaken the USD; however, cuts have not been the straw that broke the camel's back. They have lowered interest rates twice, and rate expectations have swung around. For now, there seem to be other factors driving the USD. Coordinated rate cuts created a friendly environment with depressed volatility, sustaining demand for real estate investments. As long as rate cuts are followed by other  banks, this mechanism will stay in place. As a result, Fed policy may influence the USD for a short time, but other factors may be necessary to undermine USD strength in the long term. In debt outstanding of more than 100% of US GDP, the funding requirements of the mounting fiscal deficit and the negative international investment of around 10 trillion USD are three factors that may be a burden on the USD over a longer period.

          In preparing our quarterly report, MARKET CYCLES, we take into account the input from Outlook, our monthly research source. At this point, we still believe that with midsize apartments you still get the best investment dollar for your buck. Midsize apartments generally outperform equities because of its higher yields, greater price stability, and downside protection even in a recession.  When stock markets are down (which we project will happen in 2020), they hold value and produce a positive return. They are less prone to booms and busts. Midsize apartments are now stronger than they have been in many years. 

ABOUT THE AUTHOR: Eugene E. Vollucci,  is considered to be one of the foremost authorities on real estate taxation and  investing and has authored books in these fields published by John Wiley & Sons of New York. He is the Director of the Center for RE Studies, an educational and research organization. To learn more about the Center, please visit our web site at http://www.calstatecompanies.com






Friday, October 18, 2019


If a natural disaster damages your property, you have undergone a casualty loss, which can be deductible as an itemized deduction on your federal income tax return.

As a rule of thumb, to be considered a casualty loss, it must be caused by an "Act of God". Simple wear and tear over time does not count. One type of casualty loss is damage to property caused by earthquakes and fires. You may take a deduction for casualty losses only to the extent that the loss is not covered by insurance.

You can deduct only the amount of the loss that exceeds 10% of your adjusted gross income (AGI) for the year. A one-time $100 deduction applies for the year.

Example: Your home is damaged by an earthquake. Your home has a $50,000 reduction in fair market value, but your adjusted cost basis was $20,000. Therefore, now the lower limit is $20,000. Your earthquake insurance covers $10,000 of the damage. The unpaid part of your claim is $10,000. Subtracting the $100, you end up with $9,900. If your AGI is $45,000, 10% is $4,500. You can deduct the portion of your loss above the $4,500, so you subtract that number from $9,900. Your total deduction is $5,400.

Where your disaster loss exceeds your current income, you may carry back the excess loss three years to get refunds of prior years' federal tax payments. If you still have some unused loss, you may carry it forward for up to 15 years.

What happens if you do not repair or replace the damage? You are entitled to the deduction when the loss occurs. You do not have to fix the damage to claim tax deductions.

Casualty losses are always deductible in the year the casualty occurred. However, if you have a casualty loss from a federally declared disaster, you have another option: You can treat the loss as having occurred in the prior year, and deduct it on your return or amended return for that tax year. This way, you can get a quick tax refund.

For your records, you will need to have the following:

   ►   Documents showing that you owned each asset you claimed was    damaged or destroyed—for example, a deed or receipt.

   ►   Contracts or purchase receipts showing the original cost of the item,        plus any improvements you made to it.

   ►   An appraiser can determine the value before and after the earthquake      and subtract the two; the difference is your disaster loss.

This road to recovery also applies to storm, fire and theft damages. It will lead to a less painful recovery by allowing the government to help pay for the costs of repair and/or replacement.

ABOUT THE AUTHOR: Eugene E. Vollucci,  is considered to be one of the foremost authorities on real estate taxation and  investing and has authored books in these fields published by John Wiley & Sons of New York. He is the Director of the Center for RE Studies, a real estate research organization. To learn more about the Center, please visit our web site at http://www.calstatecompanies.com



Wednesday, October 16, 2019


         News      
The Cal State Companies:  Center for Real Estate Studies ¨ Cal State Properties ¨ Cal State Investment LTD Partnership
¨E-Mail CalStatecompanie@aol.com  ¨ Webpage http://www.calstatecompanies.com


Real Estate Investment Outlook
October  2019
         
                                                                                           
          LOS ANGELES, CA. The reduction of the interest rate was justified because the growth of credit demand has slowed since the beginning of 2018, and is now expanding at a rate of around 4.5%. Compared with the average growth of credit demand during the pre-crisis recovery of approximately 8.5%, this weak demand is a favorable development for  real estate markets.

          Change in the monetary policy stance in 2019 has been dramatic. The  Feds have moved from a wait-and-see attitude in early 2019 back to a let-up mode. The Fed cut rates by 50 basis points in 2019. Against the backdrop of threats and a slowing due to trade tensions, this  seems to make sense.

          Our economic expansion is established and is now officially the longest on record. While business cycles do not last forever, we should recognize that the longer an expansion lasts, the more likely it is to stagger. Another sign suggesting that our economy is in the later stages of the business cycle is the extremely low unemployment rate. The yield curve shows signs of inverting from time to time, such inversions are not a guarantee that a recession is coming. They tend, however, to coincide with an increased risk of an economic downturn six months to two years into the future.
          We feel a recession is unlikely thanks to strong household income growth. Consumer spending is likely to remain solid, but trade uncertainty will be an ongoing drag on real estate investments. Tariffs themselves are harmful to grow. The larger impact occurs because of the rising uncertainty, which brings caution.

          Tariffs make investors unsure to what may be in the future. Many investors are waiting for greater clarity. We have already seen a significant decline in activity, and more weakness in sentiment indicators is likely in the coming months.

          Despite the slowdown in investment,  we feel that consumer spending growth is likely to remain solid, supported by continued improvement in the labor market. Job gains appear to be moderating, but this is being partly offset by a faster pace of wage growth. Overall, labor income has slowed modestly, but growth is still near its post-crisis trend. The unemployment rate has declined to multi-decade lows.

          ApartmentData.com reports that currently, the residential real estate marketplace is slowing down. This specifically means that single-family homes are becoming scarce. This is likely to drive up prices in areas that are experiencing limited supply and high demand. Core Logic recently published a survey indicating that home prices are expected to increase by more than five percent by May 2020. Scarcity of affordable homes leads directly to increased demand for rental and lease properties

ABOUT THE AUTHOR: Eugene E. Vollucci,  is considered to be one of the foremost authorities on real estate taxation and  investing and has authored books in these fields published by John Wiley & Sons of New York. He is the Director of the Center for RE Studies, an educational and research organization. To learn more about the Center, please visit our web site at http://www.calstatecompanies.com



Saturday, October 5, 2019

         News      
The Cal State Companies:  Center for Real Estate Studies ¨ Cal State Properties ¨ Cal State Investment LTD Partnership
¨E-Mail CalStatecompanie@aol.com  ¨ Webpage http://www.calstatecompanies.com


Just Released 3rd Quarter 2019
Leading Rental Income Markets


          LOS ANGELES, CA. The Center for Real Estate Studies (CRES) research report has just released their third quarter 2019 issue of “Market Cycles".  It gives a forward look at more than 150 income rental markets with “buy, sell or hold” recommendations. This publication gives the real estate investor a two-year head start on where and when to invest in rental income properties.

          The current number of markets in the “Sell Phase” is  forty-eight, according to Eugene E. Vollucci, Director of CRES.  The number of markets in the “Buy Phase” is eighteen. Mr. Vollucci states, “This quarter the three top buy recommendations are Milwaukee, WI, West Palm Beach, FL and Youngstown, PA. The three top sell recommendations are New York, NY, Eugene, OR and Raleigh, NC.” according to Mr. Vollucci.

          In this edition of our Market Cycles, we find the national vacancy rates in the second quarter 2019 were 6.8 percent for rental housing and 1.3 percent for homeowner housing. The rental vacancy rate of 6.8 percent was virtually unchanged from the rate in the second quarter 2018 and not statistically different from the rate in the first quarter 2019 . The homeowner vacancy rate of 1.3 percent was 0.2 percentage points lower than the rate in the second quarter 2018, but not statistically different from the rate in the first quarter 2019.

          Approximately 87.8 percent of the housing units in the United States in the second quarter 2019 were occupied and 12.2 percent were vacant. Owner-occupied housing units made up 56.3 percent of total housing units, while renter-occupied units made up 31.5 percent of the inventory in the second quarter 2019.

            Unemployment rates were lower in August in 5 states, higher in 3 states, and stable in 42 states and the District of Columbia, the U.S. Bureau of Labor Statistics reported today. Five states had jobless rate decreases from a year earlier, 2 states had increases, and 43 states and the District had little or no change. The national unemployment rate, 3.7 percent, was unchanged over the month and little changed from August 2018.
 
            Nonfarm payroll employment increased in 5 states in August 2019, decreased in 1 state, and was essentially unchanged in 44 states and the District of Columbia. Over the year, 26 states added non-farm payroll jobs and 24 states and the District were essentially unchanged. Nonfarm payroll employment increased in five states in August 2019. The largest job gains occurred in California (+34,500), Florida (+22,500), and Georgia (+20,800). The largest percentage gains occurred in Kansas (+0.6 percent), Georgia (+0.5 percent), and Arizona (+0.4 percent). Employment decreased in August in Oklahoma (-0.5 percent). 
 
            Twenty-six states had over-the-year increases in nonfarm payroll employment in August. The largest job gains occurred in California (+314,200), Texas (+303,500), and Florida (+221,200). The largest
percentage gains occurred in Nevada (+3.0 percent), Utah (+2.8 percent), and Washington (+2.6 percent).
 
 
            National vacancy rates in the second quarter 2019 were 6.8 percent for rental housing and 1.3 percent for homeowner housing. The rental vacancy rate of 6.8 percent was virtually unchanged from the rate in the second quarter 2018 and not statistically different from the rate in the first quarter 2019 (7.0 percent). The homeowner vacancy rate of 1.3 percent was 0.2 percentage points lower than the rate in the second quarter 2018, but not statistically different from the rate in the first quarter 2019. The homeownership rate of 64.1 percent was not statistically different from the rate in the second quarter 2018 nor from the rate in the first quarter 2019.
 
          The enduring strength of the apartment market was the main takeaway of the National Multifamily Housing Council’s Quarterly Survey of Apartment Market Conditions for July 2019, as the Market Tightness (60), Equity Financing (56), and Debt Financing (80) indexes all came in above the breakeven level (50). The Sales Volume Index (48) indicated a continued softness in property sales, albeit with considerable disagreement among respondents.
          "These latest figures illustrate that, in spite of construction levels hovering near recent highs, there remains significant pent-up demand for apartments," noted NMHC Chief Economist Mark Obrinsky. "Nearly a third (32 percent) of respondents reported stronger rents and occupancy levels, while just 11 percent indicated looser market conditions." 

          While the industry outlook is positive, political and regulatory threats like rent control threaten to upend regional markets. Among respondents to the NMHC Quarterly Survey, sixty-two percent operate in jurisdictions that have either recently imposed rent control or are seriously considering doing so. Of this group, a fifth (20 percent) has already cut back on investment or development in these markets, while an additional 60 percent is considering making changes in the future.
 
ABOUT THE AUTHOR: Eugene E. Vollucci,  is considered to be one of the foremost authorities on real estate taxation and  investing and has authored books in these fields published by John Wiley & Sons of New York. He is the Director of the Center for RE Studies, a real estate research organization. To learn more about the Center, please visit our web site at http://www.calstatecompanies.com