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The New Approach to Investing in the 21st Century

Research:  Decreasing the Group Size Making the Second Move

The time was ripe to make the second move on our quest to become millionaires. The proceeds from the first sale were traded, into another property. By keeping up with the research, we knew exactly where to purchase the next apartment building.

Since we did so well on our first move, we were able to make the second move with a smaller group of investors.  

Our second move involved a property that would require a $175,000down payment. Consequently, we needed only half of the original group to reinvest in the second property since each of the original investors now had $35,465 instead of the original $6,000. So, with a group of five members we made our second move.

Using our Research Report, Market Cycles, we discovered that Boston, Massachusetts, had the profit potential we were looking for.

As with the Phoenix area, market conditions indicated that seller financing was available in Boston. There were many different types of financing packages to choose from, but our cost analysis pointed us to seller financing. In fact, seller financing is usually the most economical method to use.

The availability or lack of seller financing also gives additional clues as to current market conditions. While seller financing indicates a “soft” real estate market where buyers can make good deals, the lack of seller financing indicates a “hot” market. Since a hot market is one that favors the seller, it usually means that the seller can maximize profits.  A hot market is a good time to sell real estate, but not a good time to buy.

Our second apartment building was purchased for $1,750,000. Our group had five investors, each contributing $35,000. The $175,000 pool was then used as a 10 per-cent down payment on the property.  

The total number of units in the complex was based on the total square footage and the unit mix to yield 44 units. The most desirable unit mix for this area was three to one.  

The first trust deed was 70 percent of the purchase price. Seller financing amounted to 20 percent; therefore, only a 10 percent down payment was required.

Operating income and expenses per square foot were compared to those published by both local real estate associations and IREM. Local property management firms were consulted to evaluate operating conditions, assist in the estimates, and verify ratios.  

Gross annual rental income was derived by multiplying the average rental rate of $8.01 per square foot times the total square footage of 32,258 square feet, for a total of $258,387. Per IREM’s reports, projected annual expenses of 35 percent of gross income were broken down as follows:

 Sales conditions in Boston were very good. The recent drop in the vacancy rate drew many sellers back into the Boston market. It was definitely the right time to sell.

A selling price of $2,325,000 was calculated by multiplying the total square footage of the property (32,258) by the selling price per square foot of $72.13, as listed in the National Real Estate Index for Boston. Total cash flow from the operations of the property combined with the equity from the sale yielded a total of $740,574 as of December 31, 1987.Since there were now only five investors in our pool, each investor netted $148,115 for each $35,000 invested. This represents a return of over323 percent, or approximately 162 percent per year.

At the end of the second move, some people might be tempted to stop here, count their winnings, and leave the real estate game. For those of you, who wish to make the last move and gain real financial independence, please follow along next month for part 6.

ABOUT THE AUTHOR: Eugene E. Vollucci, is a real estate advisor and Director of The

Center for Real Estate Studies, a real estate research organization in Torrance, California and co-author of "How to Buy and Sell Apartment Buildings" Second Edition (John Wiley & Sons, 2004).  To obtain more information about Center for Real Estate Studies, please visit our web-site at calstatecompanies.com

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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

Is Real Estate Worth the Investment?

           

            LOS ANGELES, CA. Years ago, I discovered that real estate was the best investment to control risk and create wealth. The Real Estate Digest reports that seven out of ten millionaires made their money in real estate, and Forbes magazine states that there is a three times greater chance of becoming wealthy through real estate than with any other type of investment.

Using Real Estate Investing to Control Risk

            Real estate allows you to control your risk because you can actively participate in the decision-making process. Passive investments such as stocks don’t give you this opportunity. Movements in real estate values are less erratic than in the stock market. Most people don’t understand the economic forces influencing the market. Since real estate is less volatile, it’s easier to control and to understand.  Real estate is tangible. You can touch it, you’ve been exposed to it all your life, and you can identify with it. As a result of this familiarity, you are better able to understand it. 

Effectively Reducing Your Taxes

            Real estate ownership continues to be the most popular form of investment because of its potential for substantial tax savings. Since you are able to actively participate in the management of real estate, the Internal Revenue Service (IRS) currently allows qualifying individuals to write off up to $25,000 per year against salary and other income. No other investment gives you this capability. In addition, you can defer paying income taxes on profits indefinitely by using tax-deferred exchanges. 

Leveraging That Works

Real estate is the only major investment that gives you the ability to acquire ownership with very little money down. This degree of leveraging allows you to amplify profits by using other people’s money. The more assets you are able to control, the more opportunities you have to succeed.  The degree of leverage is calculated by dividing the total purchase price of the property by the amount of funds used to purchase it. Thus, if a down payment of $10,000 plus a $90,000 loan is used to purchase a property, a 10 to 1 leverage ratio has been achieved.  The greater the leverage, the more equity will increase with the change in value of the property.

Residential Income Properties

            In the past 20 years, residential income properties have delivered the highest average total investment returns of all real estate types. With a built-in hedge against inflation, it’s no wonder that residential real estate has out-performed all other types of real estate investments with relatively low risk. Based on supply and demand over the next 10 years, residential income will out pace all other types of real estate investment. Strong demographic and financial indicators along with changing lifestyles should continue to positively influence residential income investments. 

Residential Real Estate Investing’s Three Advantages

1.      They are less dependent on business cycles for occupancy than any        other type of real estate investments. It doesn’t matter if interest rates                and home prices are high or low, residential real estate investments are generally more affordable.

2.       They have shorter leases; thereby offering greater protection          from inflation than the long-term leases associated with                         commercial properties. Rents can be negotiated more frequently.

3.      The pool of tenants is much greater for them than other types of                  properties. This ensures a more consistent occupancy than industrial             or commercial properties, which usually have only a few tenants to           choose from.

Real Estate Investments as a Shock Absorber

            Real estate generally outperforms equities because of its higher yields, greater price stability, and downside protection even in a recession. When stock markets are down, real estate investments hold value and produce a positive return. Real estate is less prone to booms and busts. Residential income real estate is now stronger than it has been in many years. 

ABOUT THE AUTHOR: Eugene E. Vollucci,  is considered to be one of the foremost authorities on real estate taxation and rental income investing and has authored four books in these fields. He is the Director of the Center for Real Estate Studies, a real estate research organization. To learn more about the Center for Real Estate Studies, please visit our web site at http://www.calstatecompanies.com

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

PO Box 96 ¨ Palos Verdes, CA 90274 ¨ Phone 800-955-3135¨ ¨ E-Mail CalStatecompanie@aol.com

 

 

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

 

 

 

How to Make Yourself Judgment Proof

 

 

The primary goal of a little-known entity, The Family Limited Partnership (FLP), is to make yourself judgment proof against frivolous lawsuits while allowing you to utilize your assets to their fullest extent.

 

Hampering Creditors

 

The creation of the (FLP) protects you from judgment creditors, as  assignees of the debtor’s interest,  they cannot vote to direct the activities of the partnership. Without this ability, they cannot disburse partnership assets to satisfy their claims. The key to hampering creditor’s action is the vote!

 

Judgment creditors can attach a limited partner’s interest in the partnership and receive any disbursement made to that particular limited partner. However, if the partners decide not to make any disbursements, creditors receive absolutely nothing.

 

The partnership may make loans to individual limited partners without making distributions or withdrawals. These loans are very difficult to attach. The partnership may decide to pay wages to the limited partner. If judgment creditors attach the limited partner’s wages, there are severe limitations on the amounts they can take.

 

Eliminating or Reducing the Cost of Personal Liability Insurance

 

By properly protecting your assets from creditor’s claims, you can effectively reduce the cost of personal liability insurance.  You can reduce expenses for personal liability insurance substantially or eliminate them entirely when your assets are adequately protected.

 

Stumbling Blocks of Creditors

 

The net effect of having your assets protected is to eliminate or reduce your exposure. This is a valuable bargaining chip if you do decide to negotiate claims.

 

A creditor attempting to go after a limited partner is in a dilemma. The creditor will have to decide whether to expend additional time and money overcoming many formidable obstacles:

 

More often than not, the creditor ends up with a charging order against the interest of the limited partner that can generally be discharged or settled for an inconsequential sum.

 

The charging order entitles the creditor to income or assets only when they are distributed. Even if income is not distributed out of the partnership, the creditor is still taxed on it because the creditor is named on the K-1 (partnership tax return). Since the creditor cannot force the distribution of assets or income, the creditor may suffer paying taxes on his or her share of partnership income that has not been received.

 

Negotiating a Settlement

 

Once the creditors understand their position, they will probably want to settle their claims as soon as possible. Your goal is to wait. If you decide to settle, use the strategies in my Stop Lawsuits Cold CD/ Workbook  to learn how to settle for pennies on the dollar.

 

  Family Limited Partnership vs. Other Entities

 

The most significant advantage an FLP has over a revocable living trust and other entities is that assets are protected from creditor claims. This is not the case in a revocable living trust. Anyone with a legal claim can effectively satisfy that claim by penetrating the revocable trust and removing its assets. In an FLP, this cannot be done because you control the vote. In addition to asset protection, the FLP can be used as part of your estate plan to avoid probate and estate taxes in the same manner as a revocable living trust.

 

Other entitles, such as corporations and trusts are costly and time consuming. A wrong move can expose your estate to the whims of creditors. Professional fees could add up to more than the value of the assets. Putting aside all these headaches, these other entities still do not come close to offering the protection of a family limited partnership.

 

ABOUT THE AUTHOR: Eugene E. Vollucci,  is considered to be one of the foremost authorities on real estate taxation and apartment investing and has authored four books in these fields. He is the Director of the Center for Real Estate Studies, a real estate research organization. To purchase the  Stop Lawsuits Cold  CD/ Workbook and to learn more about the Center for Real Estate Studies, please visit our web site at  # http://www.calstatecompanies.com

 

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Cal State Companies Real Estate Investment Guide: #How to Gain Freedom from Lawsuits

Cal State Companies Real Estate Investment Guide: #How to Gain Freedom from Lawsuits

#How to Gain Freedom from Lawsuits

              News

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

PO Box 96 ¨ Palos Verdes, CA 90274 ¨ Phone 800-955-3135¨ ¨ E-Mail CalStatecompanie@aol.com

 

 

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

 

#How to Gain Freedom from Lawsuits

 

 

PAINTING A TRUE PICTURE OF LITIGATION

 

In my attorney’s office hangs a picture depicting a farm scene entitled “Litigation.” In the middle of the picture is a drawing of a cow. At one end of the cow is a very angry man gripping the cow’s horns and trying to pull the cow toward him. His caption reads, “The Plaintiff.” At the other end is another very angry man tugging on the cow’s tail trying to move the cow in his direction. His caption reads, “The Defendant.” In the middle, sitting on a stool, is a well-dressed man with a big smile on his face, milking the cow. His caption reads, “The Attorney.” And so it goes!

 

There are two unique aspects of the U.S. system that are alleged to encourage frivolous lawsuits and out-of-court settlements. First is the contingency fee arrangement with attorneys. This is when attorneys are compensated only if they win. In other words, a person can sue without having to pay any attorney fees up front. Defendants, of course, have no such privilege.

 

Then there is the “one-way” fee system, which means the plaintiff collects costs and fees from the defendant if the plaintiff wins. A successful defendant receives nothing. Defending a case can cost thousands of dollars. Regardless of its merits, defendants will usually end up making a business decision and will settle the suit out of court.

 

A movement requiring disputing parties to arbitrate their disputes is winding its way through the legal system. I hope it takes hold and is soon adopted by the entire legal profession. Arbitration generally costs less, is quicker, and it is not as likely to cause the major disturbances brought by lengthy court trials. An experienced judge hears the facts and, based on a legal interpretation of the law, makes a decision. The judge doesn’t get involved emotionally, and the decision is based on the judge’s comprehensive knowledge of the law. Because arbitration tends to reduce attorney fees, the movement is slow in coming. In the interim, you must take measures to protect yourself and your assets.

 

PROTECT YOURSELF

 

Your best safeguard is to have no attachable assets. This can be accomplished by creating an estate plan that transfers all your assets into a family-limited partnership. It is best to make the transfer before the threat of a lawsuit and/or actual judgment is rendered against you.

 

Unfortunately, litigation has become a way of life in this country. Both time and money are lost because of this national pastime. There are over 16 million lawsuits filed each year in this country. More than 70 percent of the attorneys in the world live in the United States. You have a greater chance to face a lawsuit in the country than anywhere else does. Keep mind this could happen to you! To protect yourself, my CD/workbook Stop Lawsuits Cold, will give you the resources you need to Gain Freedom from Lawsuits.

 

ABOUT THE AUTHOR: Eugene E. Vollucci,  is considered to be one of the foremost authorities on real estate taxation and investing and has authored four book in  these fields. He is the Director of The Center for Real Estate Studies, a real estate research association. To purchase the  #Stop Lawsuits Cold  CD/ Workbook and to learn more about the Center for Real Estate Studies, please visit our web site at   http://www.calstatecompanies.com

 

 

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              News

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

PO Box 96 ¨ Palos Verdes, CA 90274 ¨ Phone 800-955-3135¨ ¨ E-Mail CalStatecompanie@aol.com

 

 

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

 

#How to Gain Freedom from Lawsuits

 

 

PAINTING A TRUE PICTURE OF LITIGATION

 

In my attorney’s office hangs a picture depicting a farm scene entitled “Litigation.” In the middle of the picture is a drawing of a cow. At one end of the cow is a very angry man gripping the cow’s horns and trying to pull the cow toward him. His caption reads, “The Plaintiff.” At the other end is another very angry man tugging on the cow’s tail trying to move the cow in his direction. His caption reads, “The Defendant.” In the middle, sitting on a stool, is a well-dressed man with a big smile on his face, milking the cow. His caption reads, “The Attorney.” And so it goes!

 

There are two unique aspects of the U.S. system that are alleged to encourage frivolous lawsuits and out-of-court settlements. First is the contingency fee arrangement with attorneys. This is when attorneys are compensated only if they win. In other words, a person can sue without having to pay any attorney fees up front. Defendants, of course, have no such privilege.

 

Then there is the “one-way” fee system, which means the plaintiff collects costs and fees from the defendant if the plaintiff wins. A successful defendant receives nothing. Defending a case can cost thousands of dollars. Regardless of its merits, defendants will usually end up making a business decision and will settle the suit out of court.

 

A movement requiring disputing parties to arbitrate their disputes is winding its way through the legal system. I hope it takes hold and is soon adopted by the entire legal profession. Arbitration generally costs less, is quicker, and it is not as likely to cause the major disturbances brought by lengthy court trials. An experienced judge hears the facts and, based on a legal interpretation of the law, makes a decision. The judge doesn’t get involved emotionally, and the decision is based on the judge’s comprehensive knowledge of the law. Because arbitration tends to reduce attorney fees, the movement is slow in coming. In the interim, you must take measures to protect yourself and your assets.

 

PROTECT YOURSELF

 

Your best safeguard is to have no attachable assets. This can be accomplished by creating an estate plan that transfers all your assets into a family-limited partnership. It is best to make the transfer before the threat of a lawsuit and/or actual judgment is rendered against you.

 

Unfortunately, litigation has become a way of life in this country. Both time and money are lost because of this national pastime. There are over 16 million lawsuits filed each year in this country. More than 70 percent of the attorneys in the world live in the United States. You have a greater chance to face a lawsuit in the country than anywhere else does. Keep mind this could happen to you! To protect yourself, my CD/workbook Stop Lawsuits Cold, will give you the resources you need to Gain Freedom from Lawsuits.

 

ABOUT THE AUTHOR: Eugene E. Vollucci,  is considered to be one of the foremost authorities on real estate taxation and investing and has authored four book in  these fields. He is the Director of The Center for Real Estate Studies, a real estate research association. To purchase the  #Stop Lawsuits Cold  CD/ Workbook and to learn more about the Center for Real Estate Studies, please visit our web site at   http://www.calstatecompanies.com

 

 

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