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Center for Real Estate Studies ¨ Cal State Properties ¨ Cal State Investment LTD Partnership

¨ Webpage calstatecompanies.com ¨ E-Mail  CalStatecompanie@aol.com

Media Contact: Center for RE Studies                                                        For Immediate Release

                       

How to Buy Real Estate at the Right Place

And at the Right Time

RULES TO REMEMBER

How many times have you heard it said, “The three most important things to remember when investing in real estate is location, location, location.” Or as John Paul Getty said there are only two rules to remember, “Buy when everyone is selling and sell when everyone is buying.” This is calstatecompanies Standard Operational Procedure (SOP).

THE BENEFITS OF BOTTOM FISHING

Remember, there are always pockets of opportunity for real estate investments. Good markets exist all over the world at varying times.  Concentrate on weak markets, not weak properties. A weak market is the most favorable condition in which to buy. Prices are depressed and profit potential is high. Sellers just want to get out. Buying in a depressed market is called “bottom fishing.”

The Key to Evaluating Locations

Focus on areas where the local economy is basically strong and the current downturn is caused primarily by overbuilding. The U.S. Bureau of the Census publishes building permit activity for buildings five units and up for Metropolitan Statistical Areas (MSAs). Identify markets with the largest gains in building permits from one year to another. If you discover a “construction bubble,” it could mean you’ve located an ideal market. With a diversified local economy, the overbuilding should be absorbed. A weak market caused by conditions other than overbuilding should be scrutinized carefully.

Real estate investing often makes money for the second owners in overbuilt markets, not the first. Builders get paid for building and they will keep on building as long as they get paid. More often than not, banks are the ones doing the paying. 

The market becomes deluged with an excess of inventory. This is when you should step in.

Employment Trends

Base employment is probably the single most important factor contributing to the economic health of an area. In evaluating employment trends, be careful of construction employment. During boom-and-bust building activity, the labor base can become distorted by construction related jobs. If possible, eliminate construction employment figures when plotting trends. Predicting growth industries and where they will be located can give you a further indication of where future employment growth will take place.

Talk with the local city planner to determine the direction of city growth. Plans for shopping malls, universities, and business parks create a potential demand for employment and desirable apartment locations.

Demographic Factors Affecting Apartments

Demographic factors are also important in evaluating demand. People tend to marry later and divorce is on the increase, both of which result in a larger single population. In addition, people are living longer. The number of households is increasing, and the size is decreasing. The affordability of single-family homes is also decreasing. 

Demographically, look for an area in which there are a higher percentage of females to males, younger and/or older adults as opposed to middle aged, singles rather than married, smaller families over larger families and renters over non-renters in evaluating favorable rental areas.

APARTMENT CYCLES

The “when” to buy and sell is just as important as the “where.” With bad timing you’ll strike out every time. To improve your timing, you must become familiar with apartment cycles. Calstatecompanies issues a quarterly report “Market Cycles” that will improve your timing.

Cycles results from the influence supply and demand have on the marketplace. Economists spend countless hours trying to accurately predict them, and gurus for the current year are the ones who guessed correctly the previous year. As long as their crystal ball remains clear, they will continue to be called on for their advice. One false prediction and they are ousted from the Nostradamus Hall of Fame.

Apartment cycles are difficult to forecast. Yet, it’s essential to have projections when buying and selling. Understanding them will give you the insight to make intelligent decisions.

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 and President of calstatecompanies. To learn more about the Center, please visit our web site at http://www.calstatecompanies.com

UTUBE: https://youtu.be/868wrjNPQFM

              News

The Cal State Companies:  Center for Real Estate Studies ¨ Cal State Properties ¨ Cal State Investment LTD Partnership

¨E-Mail CalStatecompanie@aol.com  ¨ Webpage calstatecompanies.com

Media Contact: The Center for RE Studies                        For: Immediate Release

Discover a Vehicle to Invest in Real Estate Using Little of Your Own Money

How can you invest in real estate using little of your own money?  In this article, you will discover an amazing way of gathering investors that won’t break your bank.

Calstatecompanies introduces a relatively unknown form of ownership to effectively gather active investors. It is called tenants-in-common (TIC).  It’s an easy, low-cost method of funding real estate investments while maintaining tax benefits.

OWNERSHIP FEATURES THAT PROVIDE FLEXIBILITY

Tenants-in-common is a form of ownership that may involve two or more people, and it does not require a marital relationship. With a tenants-in-common ownership:

1. There can be two or more co-owners, but their ownership interests need not be equal. For example, if three people are co-owners, one could have a share of 25 percent, another 30 percent, and the third 45 percent.

2. There is no automatic right of survivorship. Unlike joint tenancy, a share in the property held by one owner does not automatically pass to the other owners at death. When a tenants-in-common owner dies, that owner’s interest is transferred to his or her heirs and not to the other tenants-in-common, unless there’s an agreement giving title to the co-owners.

3. Interest held by tenants-in-common may be sold separately by individual owners. In many cases, when tenants-in-common first acquire the property, they agree to give the other co-owners a “first right of refusal” to buy out one another.

WAYS TO SAVE WITH A TENANTS-IN-COMMONOWNERSHIP

Here are seven advantages of the tenants-in-common ownership over other entities:

1. Low set-up costs: Compared to other forms of ownership, tenants-in-common has one of the lowest set-up costs. You don’t need an attorney to prepare offering circulars or registration with governmental agencies. In fact, all that is required is to have the names of the owners recorded when the transaction closes. A formal document is not necessary, though we would recommend one. Accounting fees for preparing partnership, trusts, and corporation returns are eliminated as well as state and federal income taxes.

2. Low down payment: In some public offerings, restrictions are imposed on the use of leverage. Using the tenants-in-common form of ownership, there are none. This is an important investment strategy in purchasing and selling midsize apartment complexes. The lower the down payment, the more leverage, and the more property you can control.

3. Active voice in management: An important investment goal is to reduce taxes. The tenants-in-common form of ownership does this by allowing an active voice in management. Tenants-in-common owners, with the help of qualified consultants, are extremely effective in making the right decisions. The old adage “two heads are better than one” hits the bull’s-eye, especially when these heads are concentrating on becoming wealthy.

4. Ease of transferability: Unlike a certification of ownership in a partnership, the tenants-in-common ownership has a greater degree of transferability.  Each owner’s name is on the deed and is recorded. An owner’s interest can be sold, hypothecated, willed, or transferred without the consent of the other co-owners, and each owner has complete control of his or her interest. In evaluating collateral, lenders generally give more credence to an interest in a recorded tenants-in-common interest than in a limited partnership.

5. Economy of scale: Because investment dollars are being accumulated by a group, there are more dollars available to purchase larger properties. Many individual investors don’t have the opportunity to use the economies of scale unless they form a group. How does this concept apply? If one unit is vacant in a four-unit complex, you have 25 percent vacancies. On the other hand, if one unit is vacant in a 40-unitcomplex, the vacancies would be 2.5 percent. 

Just think about it! When the carpet layer is called, to whom do you think the better square-foot price will be given, the owner of the 40-unit building or the four-unit building? The same applies to all vendors.

6. No mortgage or qualifying restrictions: Unlike most public limited partnerships, tenants-in-common ownership doesn’t have any restrictions for financing or investor qualifications. Financing can be structured to give the greatest flexibility to each individual owner either at the time of purchase or sale. The group is formed based on the needs and desires of its members not on standards imposed by governmental agencies. Individual owners don’t need a minimum or maximum net worth to invest. They’re not required to have someone attest to their capability of making their own investment decisions. Nor are they forced to have experts make these decisions for them.

7. Tax advantages: Using the tenants-in-common form of ownership, gives you the opportunity to become an active investor. As such, you can qualify for the $25,000 per year write-off against your salary, dividends, interest, and other income. This form of ownership provides the flexibility needed to implement the tax-saving strategies discussed earlier. Other forms of ownership satisfying only passive investor requirements do not have these capabilities.

8. Neither a real estate nor a securities license is required to form a private tenants-in-common group to invest in real estate. If you do not manage or control the group, it doesn’t have to be registered or qualified with any governmental agency as a security.

TAX IMPACT OF TENANTS-IN-COMMON OWNERSHIP

Deferred income on recognition of taxable gain when selling rental property (the Internal Revenue code section 1031) mandates that the tenant-in-common co-ownership must meet these four requirements:

1. To form a tenants-in-common group, each of the co-owners must hold interest as tenants-in-common. No one can previously have held interest in the property in any other legal entity (for example partnership).

2. The allocation of income and expenses as well as liability for blanket and encumbrance shall be in accordance with the co-owner’s percentage interest and ownership interest.

3. All of the co-owners of the entity must have the right to vote on all issues of the ownership. An owner or sponsor or manager may advance funds to cover payments due from another co-owner. This debt must be paid within 31 days.

4. There is an exit requirement that each co-owner retains a right to transfer, petition, or encumber their ownership interest.

New Guidelines for Tenants-in-Common Interest

Procedure 2022-22 provides guidelines in the use of fractional interest in the replacement properties in the 1031 exchange. The key criteria are:

1. The number of tenants-in-common cannot exceed 35.

2. The sponsor of interest may own the property or an interest there for     only 6 months before 100 percent of the interest can be sold.

3. Any decision having a material impact on the property, owners must be approved unanimously by the owners.

4. The management agreement must be renewed annually and must provide for market rate compensation.

SUMMARY

There are definite advantages to group ownership. Probably the most prevalent is economy of scale. The tenants-in-common form of ownership provides a simple, low-cost way for investors to form groups, while maintaining many tax benefits.

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 and President of calstatecompanies. To learn more about the Center, please visit our web site at http://www.calstatecompanies.com

UTUBE: https://youtu.be/868wrjNPQFM