Sperity Real Estate Ventures

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Is now the right time to sell your commercial real estate?

As a commercial real estate investor, two of the most important and difficult decisions to make are when to sell and at what price. One of the most common questions we get is when is the best time to sell your commercial property? And in the same breath, we are asked — how much is my commercial property worth?

“Buy low and sell high”, right? If only it were that simple — flip a switch at exactly the right time. Even if you do get the highest price, you also need to consider how the sale fits into your long-term strategy. If you get a great return, but it’s at the wrong time, you may miss another business opportunity or not have liquidity for personal expenses at the time when you really need it.

When is the Best Time to Sell Your Commercial Real Estate

Let’s say that you just received what appears to be a great offer from a buyer out of the blue, or you have seen news about another building like yours selling recently and now you’re thinking that it might be worth exploring the market. Or maybe you recently bought this investment property and you’re thinking ahead. (Bravo for not waiting too long to consider your exit strategy!)

photo 1501139083538 0139583c060f

 

You can break the decision making process into two silos (TIMING & PRICE), and those will interact together to make a case for whether you should sell or not. What we’re going to look at today is timing. (We will have another post up soon about pricing considerations.)

1. How is the economy and the real estate market surrounding your commercial real estate

There is no getting around it, some of the factors that influence the timing of the sale of your commercial property are out of your control. While you may not be able to control these influences, you want to know how they are affecting your timing. For example, if mortgage rates are the lowest that they have ever been (sound familiar?), then that bit of information lets you know that buyers are more incentivized to buy right now than they would be if rates were the highest that they have ever been.

  • What are the general market/economic conditions?
  • What are the vacancy and absorption rates for your specific market?
  • What is the market demand and current supply for this type of property?
  • What are the local price trends for commercial property sales and commercial leasing?
  • What are the commercial mortgage rates and terms being offered generally?

2. Drill down to specifics about your property, the commercial real estate leases and the tenants you have in place

Now that you have a sense for how the market is doing in general, and what kind of demand there is for your type of commercial property, let’s look at your asset specifically. Here we want to explore things about your building that may affect your decision on the timing of a sale. For example, having replaced the roof a month ago puts you in a very different place for marketability than having replaced it 20 years ago. Or, maybe you replaced it 5 years ago and want to sell before getting too far along and having a buyer question the long-term viability of the roof.

  • What is the financial strength and credit-worthiness of your current tenants?
  • What length of term is left on your leases? (commercial leases and apartment leases, if any)
  • How long have the current tenants been in their leases?
  • Are there any vacancies and how long does it take to fill space when there is a vacancy?
  • Is there any deferred maintenance on the building? (roof leaks, peeling paint, etc)
  • Consider the timing of capital expenditures (i.e., how long ago was the roof replaced?)
  • Is there any new development nearby? (this could hurt or help your marketability)
  • If you are also the tenant, what lease terms are you willing to offer?

3. Evaluate your personal situation and how the sale of your commercial real estate may impact you goals

Then consider your personal situation, goals, and investment strategy:

  • What is your anticipated timing of your retirement?
  • What type/class of property that you want to own?
  • What are the terms of your current commercial mortgage?
  • What is the status of any tax benefits? (i.e., historic tax credits)
  • What are the tax implications of selling vs. holding?
  • How does this real estate asset factor into your personal investment portfolio?
  • How much time/headache is this property costing you?
  • Is there something else you want to do with the capital you have invested here?
  • Are there any other personal circumstances to consider?

What can you do from here

After going through this review, you should have a solid handle on whether the timing is good for a sale — or is there another time that would be better, and how can you plan for positioning your property for sale. If there are a number of red flags that make it a bad time to sell, don’t just shelve this idea and walk away. Now is the time to look at those different pieces of the puzzle and see what you can improve. Think about what changes you could make that would create a more appealing situation for selling. When you renew a lease or sign a new commercial tenant, what should you keep in mind for the lease terms?

Of course, timing isn’t the only variable in making the decision to sell. Pricing is another huge consideration. While some aspects of timing will affect pricing, some aspects of pricing will also affect the timing.

We are here to help you achieve your goals, not convince you to sell. It very well may be that your perfect timing may be years away. Let’s make sure that we work together to take the appropriate steps to maximize the value of your commercial property.

While we are working on the next post, why not give us a call at 804-464-3898 or send us an email to get the conversation started? 

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What Are the Benefits of Commercial Real Estate?

There are a lot of different options for people who want to get involved in real estate investing. Residential real estate is what commonly comes to mind, but that’s not all you can invest in. There are also opportunities in raw land, industrial real estate, and commercial real estate. While more difficult to break into than residential real estate, there are some benefits to getting into commercial real estate.

Greater Return

Commercial real estate has the potential to net its investors much greater returns than other types of real estate. Commercial properties are usually bigger than residential properties. Coupled with the tendency for commercial properties to be divided into different segments that can be rented to multiple entities, thus diversifying your risk, the amount of income generated is usually greater. What you can charge to rent your property will depend in part on the property value. This will have an impact on your rate of return, though there are other things you can do to boost your returns.

Additional Financing Options

One of the most common barriers to breaking into commercial real estate is how much more expensive the properties are to purchase. Fortunately for those getting into it, additional financing options are available that wouldn’t be options for residential investments. Commercial properties qualify for SBA loans, including 504 and 7a loans. In order for borrowers to qualify for SBA loans, they must meet requirements based on a few factors. These include the size of their business, the type of business, their credit background, and the business’s financial situation. Additionally, you’ll need to have some form of collateral, a 10% down payment, and a personal guarantee from anyone who owns at least 20% of the business.

Greater Income Stability

Income stability can be a major concern for real estate investors. After all, if you don’t have tenants paying rent, you still have to pay your mortgage and other expenses. Fortunately for commercial real estate investors, this type of real estate investing tends to offer greater income stability. More tenants in your property means that you are less impacted by losing one. Make sure you do your part to find the right tenants for your property to further increase your income stability.

Commercial real estate offers multiple benefits to investors. It offers the potential for greater returns, additional financing options, and greater income stability. If you have the resources and capital to get started in this type of real estate investing, it’s definitely worth your consideration.

Photo by Scott Graham on Unsplash

Ready to break into commercial real estate investing? Give us a call at 804-464-3898 and take a look at the properties we have for sale!

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Why Now is the Time to Make a Move on Commercial Real Estate

Commercial Real Estate in Richmond Virginia

Photo by Derrick Brooks on Unsplash

With the coronavirus pandemic sweeping the world, many businesses have shut down, leaving many vacancies in commercial real estate. Now is the perfect time to make a move in commercial real estate because prices are down, interest rates are lower and there is an excess supply of buildings. If you play your cards right, you could be successful in the commercial real estate industry after the pandemic crisis has abated.

Lower Interest Rates

Because of the pandemic and the current recession, commercial real estate properties have a lower interest rate than normal. The interest rate has reached incredibly low proportions, meaning that you don’t have to worry about paying a lot of money in interest overtime for your properties. You can buy many properties, most likely more than you otherwise would have, though you should still be wise with your purchasing power. While you will still need to keep an eye on making the numbers work during the pandemic, the lower interest rate could prove to be incredibly beneficial to buying commercial real estate.

More Supply

With many businesses permanently closing, commercial real estate there are deals to be had. These closures have left a supply in commercial real estate. With reopening delays and shifting customer demand, many businesses will not be able to last if they don’t make the right moves — resulting in vacancies and those properties becoming available for purchase. A high number of businesses are likely to close their doors forever because of the pandemic, meaning that there is a surplus of commercial real estate buildings. You can purchase these buildings now to make a profit later when more people are looking to buy commercial properties again.

Affordable

Because of the low interest rates and the increased supply of commercial real estate properties, these properties have become more affordable than they have in a long time. Because of their affordability, now is the perfect time to invest in commercial real estate. If you have the means to do so, you can buy up properties for cheaper prices than they would have been pre-COVID-19. Buying now could be incredibly beneficial in your future if the demand for business properties once again increases.

While you may not think now is the best time to look into commercial real estate properties due to the pandemic, it is actually a great time to look into commercial real estate properties because of their affordability, the increased supply, and the low interest rates.

Ready to make a move on commercial real estate? Find your next property investment in our listings!

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A Home for DIY Heaven

If you happen to be a DIY enthusiast, buckle up, this one’s for you! AR Workshop is a privately held franchise with 175 locations in 34 states and is entirely women owned. They produce custom home décor out of raw material and also provide the instructions on how to assemble. Their inventory kits span from cornhole boards to lazy Susans, wood signs, bed frames, photo frames, chunky knit blankets and so on. It’s DIY heaven.

After visiting one herself, Catt Pulli was all in.

“I decided to just go for it and purchase a franchise!”

Catt has a background in photography and was an art major in college so becoming a home décor/DIY business owner was something that she organically gravitated towards. While it was a very spur of the moment decision, it fit nicely with her lifestyle.
Catt’s spontaneous choice was made in the summer of 2019 and had six months to find a location. While she was undertaking the brunt of the work herself, she figured it wouldn’t hurt to reach out to Nathan from Sperity, an acquaintance that was made from shooting restaurant real estate photos. He was her first point of contact.

“His advice was to find someone professional and that is how I got connected with Veronica.”

Veronica Wiles became Catt’s go-to person at Sperity. She had a lot of insider knowledge and was a welcome protection from landlords who might have taken advantage of Catt’s unfamiliarity with the ins and outs of real estate purchasing. Catt and Veronica were able to develop a great working relationship. When asked to describe the relationship she built with Veronica, this is what Catt had to say:
“She focused on everything I wanted, didn’t show me anything to waste my time and would meet me at a moment’s notice. Once we found our space, which only took a month, she helped us nail down the details of it. We moved on to working with a lawyer which she graciously recommended.”

The specifications of Catt’s desired space were 1500 – 2500 square feet to meet the needs of a craft studio. Veronica presented 10 options to choose from, and Catt had her eye on one.

“I wanted to be central to Mechanicsville and found a spot which we initially didn’t get. It was over our price point, but Veronica was able to work a deal out and we eventually got the space!”

Veronica’s help was invaluable during and after the process. She had recommendations for even contractors. Nathan was a welcoming presence as well in the background, ensuring everything was moving smoothly.

Starting a new business has its challenges under normal circumstances and the current pandemic meant Catt had to adjust to the situation. After opening up in her new business in February 2020, she immediately had to turn around and close her business before they could really get going. Faced with the task of providing her services in a safe and convenient manner, Catt pivoted to preparing DIY kits to-go. Her resilience is a testament to the dedication she has to her patrons.

The space, at 7362 Bell Creek Road, worked out perfectly because it is in a well-known area and customers are aware of their presence. She was able to make the best out of a novel situation.

Catt’s journey to the perfect location was achieved because of the devotion and guidance of Sperity Real Estate Ventures.
“Nathan was the first person that I thought of. I know a lot of real estate agents, but he was my first thought. I knew he would answer my questions and I trust him. When Veronica and I were looking at places, she knew everybody. She was warm and friendly. It feels like we are good friends now.”

 

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My TOP 5 Favorite Projects [VIDEO]

My TOP 5 Favorite Projects:

Hey RICHMOND!!!Do you love supporting LOCAL businesses and organizations?That's what I love MOST about my job. I’ve been in the commercial real estate and brokerage world for over 15 years. I get to help local businesses and organizations find a place to call home right here in Richmond. In fact, here are my TOP 5 Favorite Projects:#1) Flooring RVA.We helped find them a new showroom with more space AND we were able to help find a tenant to replace their previous lease so they could make a clean break.#2) The Summit (Scott’s Addition area).Such a great, action packed area of town where we were able to help long time friends sell two different properties at the same time.#3) Nomad Deli & Catering Company.Anthony and his family are proof that the American Dream is alive. They started this family owned business as tenants, but eventually bought their building and have continued a successful (and delicious) restaurant!#4) LUX ChurchThis is a great community minded organization that brought life back into a building that was over 130 years old and an area landmark.#5) Liberty Public HouseWhen Alexa told us about her dream concept of a restaurant inside a renovated, historical building, we knew we had just the right property for her! In fact, she moved all the way back to Richmond from the west coast to fulfill her dream of being a restaurant owner.

Posted by Sperity Real Estate Ventures on Tuesday, June 30, 2020

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Just Closed A Restaurant? 3 Problems You May Need to Address Before You Lease Again

If you just closed your restaurant and are looking to lease it again, it is important to be aware of potential problems that you may need to address first. Indeed, in real estate, knowledge is power. You may encounter problems, such as pests, lingering odors, and safety or health issues. These problems need to be addressed sooner rather than later before you can even think about leasing your restaurant space again.

Pests

Unfortunately, it is common to encounter pests after closing a restaurant. It’s important to address these problems because they can introduce dirt and disease to your property. When addressing this problem, be sure to clean thoroughly with disinfecting chemicals. Close all openings around wiring, vents, and drain pipes to ensure that bugs cannot return and bother the new renters. In addition to bugs and rats, other vermin might seek out food from the now-closed restaurant space. You can set up snap and sticky traps for rats and mice. If bugs and vermin continue to be a problem, calling an exterminator is a good course of action.

Lingering Odors

In addition to pests, it’s not out of the ordinary to encounter lingering odors after closing a restaurant. These odors can be unpleasant and unappealing for new renters, so they must be fixed before the property can be rented out again. Grease and burnt food are typical culprits of lingering odors. Vinegar, baking soda, and odor-removing cleaning agents are a few ways you can remove these odors. There are multiple odor elimination methods to choose from, so consider your circumstances and needs when selecting which method is right for you.

Damage, Safety, or Health Issues

There can be any number of circumstances which would cause a previous restaurant space to present safety or health issues or have internal damage. Before leasing the space again, it is essential to repair any structural damage to the property. It’s also essential to verify that all carbon monoxide and smoke detectors work, and that there are at least two forms of exit from the unit. Make sure to check for mold and lead-based paint hazards presented by old buildings.

Taking the time to check your property for pests, lingering odors, damage, safety, and health issues will allow you to eliminate unpleasant surprises. Taking care of these issues will help your leasing process to happen more smoothly, and ensure happy future tenants.

Need commercial real estate advice? Contact us today and we’ll be happy to help!

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Renting on the Rise in Richmond (and everywhere else)

Have you noticed a recent spike in your monthly rent? A lot of people have, and it’s a trend not only locally but in markets across the country.

According to http://news.investors.com, over the past several years homeowning has become more difficult and former homeowners are now becoming tenants in mulitifamily dwellings. Due in large part to the economic downturn, many homeowners today can no longer afford to pay a monthly mortgage and instead are resorting to the next alternative: renting apartments.

As with most news, this is a mixed bag — it’s not good for renters, but it does make for a strong market for multifamily properties, supporting higher sales prices and spurring new development and redevelopment of multifamily properties. (see last week’s post about local development for current examples of this happening right here in Richmond)

Across the nation, multifamily properties are leading in occupancy and rent growth when compared to commercial developments, like office space and retail properties.

In a recent housing study by commercial property brokerage firm Cassidy Turley, chief economist Kevin Thorpe said:

“I’m optimistic about the multifamily sector, certainly for the next two years…We’ve entered a period of sustained rent growth.”

This recent boom in multiple tenants occupying apartment units is due to the fact that the average renter a year ago could afford the rent for a single family home when now the cost is too high.

Richmond seems to be following that rising rent trend, too. In 2007, the cost of a single bedroom apartment averaged $754/mo. and now the average cost is approximately $814/mo.

Have you seen this happening when your lease has come up for renewal? What do you think the renting forecast will look like in RVA for the rest of 2012?

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Don’t try to fool the insurance company

Understanding Landlord Insurance

By: Dona DeZube

Published: September 1, 2010

Turning your home into a rental or buying an investment property? Expect to pay up to 20% more for the right insurance policy to protect your property.

 

Rental properties require their own type of coverage–landlord insurance, which is different than the homeowners policy you buy when you live in a house yourself. Landlord insurance protects you against losses from fire, lighting, falling trees, wind and hail, water damage, and injury to your tenants and their guests.

But it doesn’t cover the renters’ household goods. So encourage tenants to buy a renters policy to cover their stuff. You can even include a clause in your lease saying they have to buy renters insurance, so everyone is clear about what’s insured and what’s not.

Landlord insurance is expensive

You’ll pay 15% to 20% more for a landlord insurance policy than you will for a homeowners policy on the same house–and even more if you offer short-term rentals. Start your policy shopping by calling the company that sold you your homeowners insurance, then check with an independent insurance agent selling commercial and business policies.

Ask how you can get discounts if you have fire prevention devices, burglar alarms, or multiple properties.

What a landlord insurance policy probably will cover:

  • Lightning, windstorm, hail, explosion, riot and civil commotion, smoke, falling objects, snow, ice, sleet, vandalism, sonic boom, sprinkler leakage, frozen pipes, water damage, burglary, volcanoes, and sinkholes.
  • Things that belong to you that stay at the property, like appliances, furniture, or lawn care equipment. Keep an inventory of what’s on site.
  • Outbuildings, like sheds or garages, although this coverage will have its own limit (probably 10% of the overall insurance policy amount).
  • Costs to defend yourself against lawsuits filed by tenants or guests, as well as the costs awarded if you lose the case. Some policies cover medical bills for injuries; some don’t.
  • Lost rental income if the property is damaged and you can’t rent it.

What a landlord insurance policy probably won’t cover:

  • The tenants’ belongings.
  • Your rental property if it’s vacant for more than 30 days. Seek an exemption in advance from your landlord insurance company as soon as you know the property is going to be vacant.
  • War and nuclear, biological, chemical, or radiological attacks.

Optional coverage you might want to buy:

  • Flood
  • Earthquake
  • Vandalism (if the policy you buy excludes it)
  • Pool and tennis court insurance
  • Liability for personal injury, wrongful eviction, wrongful entry, libel, and slander

Don’t forget liability coverage

To cover yourself in case you lose a big court case filed by an injured tenant, buy anumbrella insurance policy that gives you liability protection for $1 million to $5 million or more if you have a lot of assets to protect.

Don’t file a claim unless you absolutely have to

There’s a limit to how many claims you can file before insurance companies start charging you more or canceling your policies. Claims can quickly add up as you buy more rental properties.

One time you always want to file a claim is when someone says they’ve been injured on your property. One claim you’ll want to avoid filing: water damage for less than $10,000 because worries about mold growing in water-damaged properties will lead some insurers to immediately cancel your insurance policy.

More from HouseLogic

How to Correct Your Clue Insurance Report

Improve Your Insurance Score

Other web resources

Renters Insurance Brochure to Share with Your Tenants

Dona DeZube, HouseLogic’s News Editor, has been writing about real estate for over two decades. She lives in a suburban Baltimore 1970s rancher on a 3-acre lot shared with possums, raccoons, foxes, a herd of deer, and her blue-tick hound.

 

Visit houselogic.com for more articles like this.

Copyright 2011 NATIONAL ASSOCIATION OF REALTORS®

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Small rental property owners breathe a sigh of relief

There is always a lot of new legislation passed every year that sounds like a good idea at the time and generally goes unnoticed, and every once in a while the consequences of that legislation become horrifyingly apparent afterwards.

This past year, the legislation that was causing so much heartburn for small property owners was a new IRS requirement that anyone with rental property file a 1099 for any repairs that add up to $600+ over the course of the year. (see my post about it here, from December 2010)

Good news — the provision was repealed before it could take effect!! (here is the actual legislation that was passed to repeal the IRS provision, in case you would like to read it)

Hats off to the Realtor community for standing against this for the good of the mom-and-pop investors, who are the ones would be most affected by those proposed requirements — and for Realtor Magazine’s blog for bringing the repeal to my attention. From their description of how everything unfolded, it seems as though everyone understood that this was good to do:

When the provision was included in the small business bill, REALTORS® were among the first and firmest opponents of it, helping to ensure that Congress understood the provision was an example of over-reach that was never intended to burden mom and pop property owners. Members of Congress and President Obama got the message and, in a rare example of agreement between not only Republicans, Democrats, and independents, but also between House and Senate chambers and between the legislative and executive branches, lawmakers agreed the provision needed to come out.

Nice to know that we don’t have this provision coming up to haunt us over the next few years, isn’t it?

 

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Redevelopment plans for Carytown get nod from Museum District

The redevelopment of the old Verizon building at 10 N. Nansemond Street has been hotly debated and contested. (see: the official site for the Carytown Place; Don’t Big Box Carytown‘s website; & this post and the accompanying comment thread on Caramelized Opinions for a good summary & feel of the debate)

The Museum District Association had originally ruled to oppose the redevelopment based on the original plans, but Friday they sent out a press release announcing the reversal of that position.  The gist of the situation can be summed up from this one paragraph in the press release:

The Board voted 13-1 in November to oppose the original SUP and subsequently provided the applicant with detailed requests for further changes to make it more amenable to the neighborhood. The applicant responded by altering the SUP to remove vehicular ingress/egress on Nansemond Street as well as reduce the number of available uses of the property to 10 uses. The applicant also agreed to limit the usable floor space of any one tenant to no more than 25,000 square feet, ensuring there would be multiple tenants in the building and ruling out a single, larger “big box” tenant.

The whole press release can be read here on the MDA’s website (right now it’s at the top, but it will shift down the page as new releases are issued).

What do you think? Are you satisfied with the MDA’s ruling, or are the changes in the plan not enough for you? In that case, what changes would be enough to get your support for the development?

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Important! New IRS requirements for all landlords

PaperworkAnyone receiving rental payments from either residential or commercial properties will need to review the newly-enacted small business legislation called HR5297 with their accountant and how it expands 1099 reporting requirements.

Currently, only real estate professionals that engage in property management services have to use 1099 forms to report any service provider that they pay more than $600 in a given tax year.

The changes will be enacted over the next two years as follows (details from the NAR Issue Brief released recently — can be found online here or hosted on my site here):

2011 Rule: ALL persons who receive rental payments must provide Form 1099. This affects ALL owners (both individuals and businesses) of rental properties, both residential and commercial. Thus, “mom and pop” investors and those who invest in real estate for their personal portfolios are subject to the new reporting requirement. Only aggregate annual payments of $600 or more for services (but not goods) must be reported.
2012 Rule: All businesses, including real estate businesses, self-employed individuals and independent contractors will be required to make a 1099 report of any aggregate annual payment of $600 or more to any person from whom they acquired goods and services.

Please keep in mind that I am not an accountant, so before you act on any of this information (or panic. or dismiss.) please consult with your accounting/tax professional.  But when I saw this come across my desk, I thought it was important that you are aware of these new rules!

(*Warning! Sales pitch!*) And, by the way, here at Bandazian & Holden, we have dealt with these reporting requirements from when they were first enacted for real estate professionals in the property management field, and we are accustomed to handling the necessary paperwork for our clients.  If you don’t feel like dealing with it on your own, let me know and come on board with us. (*End of warning. Enjoy your day!*)

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News on Condos (not such a surprise)

Condos, condos, condos….  If you read this blog at all, then you know my viewpoint on the ongoing fad of converting everything to condos.  (and if you don’t, then just keep reading)

I don’t have a lot to say about it right now, but I wanted to point you to an article on MSNBC.com from a couple of weeks ago: "Scramble for affordable apartments" — and especially to this quote from the article about residential condo development:

In smaller markets such as Portland, Ore., Richmond, Va., and Omaha, Neb., demand has outpaced development.

I’ve been saying it for a while, but it’s nice to have something in the news backing me up on it.

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“Party houses” in the Fan

The Fan District Association has implemented a patrol that will be out on Friday and Saturday nights watching and listening for "out-of-control" parties.  The offending addresses will be reported to the police and then recorded on their website for public access.

>>>

Report Those Party Houses to the Police!

         

            

Councilman
Bill Pantele working with the Richmond Police Department’s Sector 313
is introducing a new program to identify and report properties which
cause disturbance in the neighborhood. The program know as Party House
ID is being introduced to the FDA membership to allow our members to
make sure that party houses are included in the list of address
maintained by the Richmond City Police Department. We also encourage
residents to call the police each and every time that your peace and
quietude is interrupted.

            


                  The Fall Party Patrol kicks off this weekend — we have obtained a special cellular telephone number courtesy of
                    Verizon Telephone’s wireless divisions.
              Party Patrol (804) 317-2840
                Download the Party Patrol Flier to share with your neighbors
                  Click Here to Fill out the Form.
                  See a Map of the Party House Locations
              Information about the City of Richmond Noise Ordinance Section 38-1 & 2 and
                Virginia State Code Sections 5.1-317 Maintaining common nuisances; penalties.
                for filing complaints through the
                magistrates office
              The Party Patrol is currently running on Friday and Saturday nights from 9:00 pm to 3:00 AM

         

>>>

Good for them getting together to patrol and reporting the nuisances to the police!

I do, however, have an issue with the policy of publishing these "nuisance" addresses on a public access website. 
*Once a property is listed, is there a procedure for getting a property removed from the list once there is no more problem? 
*How will this list stigmatize an area?  (i.e., if I am a property owner a half a block removed, how will this public info affect my property value?)

I see this "solution" as a problem in itself.  We shall see.

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IRS Regs: Real Estate Investor?

As covered by Diane Kennedy in her article for the Realty Times, the IRS splits real estate "investors" into 3 categories:  Dealer, Developer, & Professional.

A Dealer buys and sells real estate as relatively quick transactions (also known as "flipping").  The Dealer counts in the eyes of the IRS as a self-employed individual, with the appropriate tax responsibilities, in addition to having to realize the entire gain immediately upon sale of a property.

A Developer buys and changes the use of the property.  The biggest tax implication is that the Developer has to capitalize the expenses (direct and indirect) involved in developing the property, and then apply those expenses upon the sale or use of the property.

A Professional deals with real estate the majority of his/her working time and owns 5% or more of his/her business.  As a Professional, you can "take a full deduction for any real estate losses against your other income."

Rather confusing, I think.  But that’s why I would suggest you: A) Read the original article, and B) Consult your tax accountant.

(Thanks to Urban Trekker Blog for bringing this article to my attention.)

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Condos reverting to apartments

As USA Today reported, the recent cooling of the real estate market nationwide is causing the the buyers of condos to dry up.  Coupling that with the trend of converting multi-family housing to condos (which I see is still a hot trend in the Richmond market), there is a glut of condos available.

This is having two directly observable results:

  1. Rents are rising as the supply of rental units shrinks due to conversions to condos, and the demand for rentals increases as mortgage rates rise.
  2. Some developers are noticing the first result, and converting their condo buildings back to rental units.

(see also Stronger Market for Apartment Investors  & New Hiton Hotel redevelopment of Miller & Rhoads )

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College Areas Good for Investing

While students are the not always the best tenants, there are lots of good reasons to buy investment properties in college areas.


College enrollments expected to rise by almost 1.6 million students, or
15 percent, over the next 10 years, according to the U.S. Department of
Education, and the number of graduate and professional students is
growing even faster, at almost 25 percent.

With the increase in students, there will of course be a rise in professors, administrative staff, space needed by the colleges, and supporting industries (research, retail, restaurants, etc.).  While the article at REALTOR� Magazine Online -Daily News- College Town Properties Are a Smart Buy focussed on small college-dominated towns, this is a very good sign for Richmond.  With Randolph Macon, VCU, UR, VUU, and the community colleges here, the areas around each of these schools will feel the impact.

Now is the time to jump in and start investing for the future growth, especially since the market has slowed down just a bit.

[Source: Dow Jones Business News, Jennifer Openshaw (07/04/2006), cited in the article mentioned above]

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New regs for flipping properties

The FHA has addressed a lot of "malpractice" in the practice of flipping properties.  Reportedly, some investors are profitting well at the expense of the FHA.

But the FHA found that too many property flips using its insured
mortgage program involved outright fraud — hyped appraisals, shell
games where property flippers never actually took legal title to the
house before selling it for huge profits, sometimes overnight.

Link: Realty Times – Real Estate News and Advice.

To rein in such practices, FHA proposed — and last week adopted in final form — new restrictions. Specifically, FHA will now require that:

    * Only owners of record — listed as such in the local court house real estate recordations — may sell properties that will be financed using FHA insured loans.

    * Any resale of a property may not occur 90 or fewer days from the last sale to be eligible for FHA financing.

    * For resales that occur between 91 and 180 days where the new sales price exceeds the previous sale price by 100 percent or more, FHA will require additional documentation of the property’s true value before insuring the mortgage.

    * The agency may also require additional evidence of the accuracy of appraisals whenever properties are re-sold at high price gains within 12 months.

The FHA 90-day no-flip time restrictions will be waived when the sellers of properties to be financed are:

    * HUD itself, disposing of its REO (real estate owned) acquired property portfolio.

    * Sales of properties that were acquired by the sellers through an inheritance.

    * Fannie Mae, Freddie Mac or other federally-chartered financial institutions disposing of REO.

    * Local or state housing agencies.

    * Nonprofit organizations that have previous approvals to purchase HUD REO properties at a discount.

    * Properties located in a presidentially-declared disaster area, provided FHA has issued a formal announcement of eligibility for a specific disaster area.

Real estate investors, particularly those who specialize in rehabilitations of rundown structures in central city areas, had complained to HUD about possible negative impacts on their business activities stemming from the new rules. But HUD decided that banning most 90-day or under flips, and by scrutinizing flips between 91 and 180 days of acquisition where the price markup exceeded 100 percent, FHA should be able to protect itself against the worst abuses.

Investors with questions about the new regulations can call 1-800-CALL FHA for guidance. The rules are contained in HUD Mortgagee Letter 2006-14, issued June 8.

I, for one, am glad to see that the hucksters are being shaken out of the industry.  We need to uphold the ethical standards that so many of us take for granted.

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Expansion of Henrico County Enterprise Zones

Henrico County is currently voting on the expansion of their Enterprise Zones.  These zones are areas especially designated for special programs that are designed to lure new business into the area.

In Henrico, companies that build or renovate in
Enterprise Zones are eligible to receive a variety of state and local
benefits, including – among others – free architectural drawings to
suggest exterior improvements; a seven-year tax exemption; grants
totaling up to $30,000 or 33 percent of total renovation costs
(whichever is less); employment and training assistance and various
other county advice.

Several areas within Henrico County already offer such benefits for relocating businesses and starting up new businesses.  The proposed expansions are as follows:

  • a western expansion of 131 acres along the eastern side of Staples Mill Road between Wistar Drive and Parham Road;
  • a central expansion of 563 acres along portions of Laburnum Avenue, Mechanicsville Turnpike and Nine Mile Road;
  • an
    eastern expansion of 697 acres stretching along Williamsburg Road
    (generally between Nine Mile Road and Charles City Road) and along
    Audubon Drive.

The expansions are being voted on this week!  Keep an eye out for the results.

Keep in mind that the City of Richmond
and other surrounding counties also have designated Enterprise Zones,
and so does the State of Virginia.

For the full story, see the 5/17/06 edition of the Henrico Citizen.

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New Cineplex Slated for the Boulevard?

As reported in Style Weekly (5/17/06), there are plans for the redevelopment of Richmond Steel, just a short walk from the Diamond. 

Plans for an entertainment complex … that include a 12-theater multiplex and two restaurants are those of Bow Tie Partners, a real-estate development and entertainment company with principal offices in Manhattan and Aspen, Colo.

Bow Tie Partners specializes in redevelopment of historic and architecturally significant properties, while its affiliate, Bow Tie Cinemas, owns and operates a string of luxury movie houses.

As exciting as it sounds, we won’t know until the plans get a little further along.  As Style points out, "in May 2005 Bow Tie Partners bought a 2-acre block downtown….preliminary plans included retail and residential space and a movie cinema."

[Read more…]

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Changes to S&P REIT Composite Index

Taken from a newsletter from the National Association of Realtors:

To provide a more accurate picture of the global investment landscape, Standard & Poor has changed the definations for several Global Industry Classification Standards (GICS) categories

and implemented new categories. Changes in the Real Estate Industry
Group include replacing the ‘Real Estate Industry’ with two new
Industries: ‘Real Estate Investment Trusts’ and ‘Real Estate Management
& Development.’ The new Real Estate Investment Trusts Industry will
see the creation of seven new Sub-Industries: Diversified REITs,
Industrial REITs, Mortgage REITs, Office REITs, Residential REITs,
Retail REITs and Specialized REITs. The new Real Estate Management
& Development Industry will include a Real Estate Management &
Development Sub-Industry. Standard & Poor is a leading provider of
independent credit ratings, indices, risk evaluation, investment
research and data.
   
      
Report compiled by NAR International Operations, narglobe@realtors.org.

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Stronger Market for Apartment Investors

As reported in the NREI, investors interested in multi-family housing have a strong market building.  The study cited focussed on the housing market slowdown in Southeastern cities, and how several factors are contributing to the favorable market for apartment owners.

The increase in mortgage rates is one factor that is slowing the residential purchase boom, and is consequently encouraging families to rent.

Another trend that I’ve seen in full force in the Richmond market is the effect of the numerous condo-conversions taking place simultaneously.

Another trend line that apartment investors should watch closely is
conversion activity, which has added strength to the rental market by
eliminating inventory. If the first quarter was any indication, the
conversion slowdown that began last October has carried into 2006: Reis
Inc. reports that roughly 30,000 apartment properties were converted
into condos during the fourth quarter of 2005, down from 50,000 in the
third quarter.

In effect, the slowdown of residential sales can be turned to the advantage of the wise investor.  Be on the lookout for good deals on rental units!

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