Top Real Estate Deals of the Day

Finding the best deals in real estate just got easier. RankYourHome.com provides several tools for homebuyers, sellers, investors and real estate brokers that streamline the process of identifying good realestate deals. One of their key offerings is ‘Top Deals of the Day’, a daily email subscription service that serves up both newly listed or just price reduced properties that have been determined to be a good deal. Properties are analyzed and ranked against the local real estate market using a stars system,with 5 stars being the best potential deal. I used the "Top Deals of the Day" to identify the cash-flowing Ballard rental property I bought at the end of the summer. It is a great service! The engine behind the property analysis is QVM, a top rated automated valuation engine (AVM). QVM is a real-time analytics engine that produces the property’s value, and unlike traditional valuation platforms, QVM results in Qvalue (estimated value for the property at average condition) and Qequity (percentage of potential equity relative to the property’s list price). These two values are consistently updated as the market changes. In addition to ‘Top Deals of the Day’, the RankYourHome.com site offers more resources for buyers and sellers. Those looking for good real estate deals can customize their search experience to zero in on good deals that meet their specific criteria. Sellers have the ability to test out suggested listing prices for a property and see how competitive that price is against the other properties on the market. RankYourHome will save you time and help you make better investing decisions in today’s changing real estate market. Readers of this blog get the best pricing on this service: Readers, be sure to use the Coupon “WENDY” when you purchase a subscription for “Top Deals of the Day” from RankYourHome.com. There is an easy to notice “Coupon” field on the Subscription Center page, right before making a payment. Prices for my blog readers are as follows: · Monthly: $10 / month per county · 6 months: $9 / month per county (total payment of $54) · Annual: $8 / month per county (total payment of $96) – best deal This offer provides savings of up to 66% off regular pricing. They offer a free 30-day trial at: http://www.rankyourhome.com/ Check it out today and experience the benefits of RankYourHome.

Institutional Investors Snatch up Bank-Owned Houses

Multifamily Executive had a great article about the recent trend of institutional investors buying up single family homes for rentals: • From: MULTIFAMILY EXECUTIVE • Posted on: December 13, 2012 Competition Heats Up in REO-to-Rent Space By Derek Mearns For years, the shadow market of single-family rentals has been a nagging nemesis of the apartment industry. It’s notoriously difficult to quantify, both in terms of sheer numbers and its impact on the multifamily market’s fundamentals, hence the name. It is to the apartment industry what unlicensed cabs are to the taxi industry. But maybe there’s nothing to fear. According to Jeff Hayward, head of Washington, D.C.-based Fannie Mae’s multifamily division, there’s plenty enough demand to go around, and it’s an apples-to-oranges comparison anyhow. “We see REO-to-rental initiatives as a complement to the multifamily market,” says Hayward. “A standalone house attracts a different type of renter; they tend to be older, may have a family, and therefore need more space. They may have even been through a foreclosure or short sale, so they may be accustomed to living in a single-family home.” Some early investors in the single-family rental market have seen their gamble pay off handsomely. Single-family rents rose by 2 percent in 2011 and nearly that much in 2012. That might not sound like much when you stack those numbers up against apartment rent growth. But consider this: Single-family rents have been growing steadily for a couple of years even though the sector’s growth typically lags home price growth by about 12 months. Take Santa Monica, Calif.-based Colony Capital. Colony has become a dominant player in the sector, scooping up more than 19,000 distressed single-family properties or loans since 1991 to the tune of $48 billion. And Colony CEO Tom Barrack has publicly announced he will be placing a $1.5 billion bet on this specific asset class moving forward. Currently, Colony’s investments are yielding 7 percent to 8 percent returns after expenses. In November, the firm purchased a 970-property portfolio from Fannie Mae under the federal REO-to-rental program for approximately $176 million. The homes are split between California, Nevada, and Arizona. And then there’s New York-based Blackstone, which is buying $100 million in houses each week and is up to about $1 billion in its current portfolio. “This is the kind of thing that happens once, or every once in a while, where you see something that’s a market-turning trend,” says Stephen Schwarzman, Blackstone’s chairman, in a conference call. “And we are loading the boat.” One of the pioneers of the REO-to-rental business was Scottsdale, Ariz.-based American Residential Properties (ARP), which is in the process of filing for an initial public offering in 2013. According to Laurie Hawkes, president of ARP, the company looks at individual family circumstances and regional considerations to ensure its portfolio is filled with profitable assets across the board. “Our expectations in these investments really do vary regionally,” says Hawkes. “We are generally seeing 20 to 25 percent turnover, but we’re still in the early stages of this investment class.” ARP usually looks for investments in the $100,000 to $200,000 range and has been seeing 5 percent to 7 percent net returns so far.

Place Your Bids New investors are embracing this trend too, and competition continues to grow more heated, with all-cash institutional investors and smaller, local firms forming joint ventures left and right. Among those willing to put all of their chips on the table is Oliver Chang. Until May of 2012, Chang was the head of U.S. housing strategy at Morgan Stanley. But then he decided to put his experience and analysis to the test and put his money where his mouth is. He quit the Wall Street life to found Atlanta-based Sylvan Road Capital to invest in the single-family rental market. In the short time since its inception, Sylvan Road has already partnered with Atlanta-based Delmar Realty Advisors, and has acquired 200 foreclosed homes, renovating each for $30,000 to $50,000 per house. According to Chang, Sylvan plans to spend more than $1 billion on REO-to-rentals in the next two years through a variety of different financing methods. Given the interest of such well-heeled behemoths as Colony, Blackstone and Starwood, it’s surprising that the first two winning bidders of the federal REO-to-Rental dispositions were smaller firms. The first pool of Fannie Mae REO assets, consisting of 699 properties in Florida, sold to San Diego-based Pacifica Companies for more than $12.3 million. As part of the deal, a new LLC was formed wherein Pacifica shares controlling interest with Fannie Mae. Fannie receives 90 percent of the rental revenue, up to the point it reaches $49 million, after which Fannie’s slice drops to 50 percent. The second winning bidder was the Cogsville Group, which bought 94 Fannie Mae properties in Chicago. And earlier this month, Boston-based nonprofit developer The Community Builders bought a 19-property portfolio in Cincinnati from Fannie Mae for $10.6 million.

Quote of the Day from Trulia.com: ...even in some markets with the biggest rent gains nationally, prices are zooming ahead of fast-rising rents–including Denver, Seattle, and San Francisco....

Small Business Tax Tips

Here are my notes on the Intro to business taxes webinar by Corporate Tax Network on December 18, 2012, sponsored by Laughlin Associates. More than 90% of Americans pay out more in taxes than in any other expense. How can we use business vehicle to keep more of our money? New Tax Law Changes for 2012 IRS requested 5% increase in audit tax force for the year. IRS is cracking down on tax preparation industry, and the industry will become more regulated. New law requires that every tax preparer must register and take a competency test to show up-to-date information. This should result in higher quality work on taxes. Banks and other financial institutions are now required to report credit and merchant transactions. Many more tax changes in 2012 than in previous years; payroll tax has gone up 3.6% this year. Deductions for purchasing assets are now being taken away. Now that the economy is turning around, many incentives are changing. Standard deductions have changed, tax brackets are increasing. Many business tax items have also changed in 2012. Often, eligible credits are not taken by qualified taxpayers because they are unaware of it. How is Business Taxed? Sole proprietorships are taxed the highest. You are taxed on profit, not total income, so goal is to reduce profit in order to avoid taxes. LLC does not come with an inherent tax structure. Annual return can be prepared on four different sets of paperwork. This paperwork must be chosen at the beginning of the year, or immediately upon forming the LLC. S-corps need payroll to pay yourself. Profit or loss will pass through to your personal tax return. C-Corp is subject to double transaction: taxed on profit at corporate tax rate and also taxed on the money paid in salaries. Non-profits do not pay taxes, but must file. Profits are reinvested into the business. What if there is a profit/loss? Losses on the S Corp, LLC or Sole proprietorship pass through to personal returns to offset other income. With C Corps, losses carry forward to next year’s corporate filing. First year losses are fairly normal. Deduct as much as possible to save on taxes. In order to do this, you must look and act like a real business. Government cannot tax you unless you are profitable. Showing a loss results in tax benefits; profits result in tax liabilities. Get a business phone number, website, listings in professional directories, etc. How to pay yourself? Sole proprietorships are pass-through corporations for tax purposes. S Corps have two kinds of compensation: distributions and salary. The IRS requires that you pay yourself a fair and reasonable salary. Distributions are not subject to self-employment tax. C Corps pay dividends and salary. Both S and C Corps need to file quarterly payroll taxes. Taxes are paid throughout the year, and adjustments made annually. Commonly missed deductions?

Rent for home office, electric, internet, etc. Did you know that there is a recapture tax if you sell your home where you deducted costs for a home office? Meals and entertainment can be deducted, as long as it is a usual and ordinary part of doing business. Vehicle deductions for mileage or for expenses. It may make sense to sell your car to your company, or purchase a company car. Self-insured medical deductions Retirement plans Income shifting – take the money we make and spread it out; e.g. paying minors for help in the office Multiple Entity Structuring for tax benefits and income shifting Estate planning to distribute wealth without high taxes Gifting (up to $13,000 tax free), etc. IRS bookkeeping requirements Where are you doing business? Different states have different tax structures and liabilities. Business bookkeeping is time-consuming. Businesses are required to keep accurate records. How to build your business credit score Transfer all business debt into the name of the business and away from your personal credit. Paydex score is the business credit rating. Write off interest on debt as a business expense. Most common IRS penalties: -- over- or under-payment of taxes -- late or inaccurate filings --100% penalty on unpaid withholding taxes Use the tax code to your advantage by proactive planning. Contact Corporate Tax Network at 866-893-5730.

Huge SpaceMaster Remodel in Golfing Community!

$299,950 PRE-LISTING SPECIAL!! This beautiful, spacious property is in the desirable Oakbrook golf course community, surrounded by three golf courses, near Lake Steilacoom and two nearby parks. Houses like this do not come on the market very often. Renovation by the JR Sampson Company includes - New Roof with 30-year warranty - New Double-Pane, Energy-Efficient Windows - Refinish Hardwoods - New Gourmet Kitchen w custom cabinets - Updated bathrooms - Master BR w 4-piece bath and walk-in closet - New Interior / Exterior Paint - Upgraded electrical - Landscaping Get in now, before the property is listed on the NWMLS, and beat out other buyers! Owner is a licensed real estate broker in the State of Washington. Interested buyers should contact the owner at: HomeLandInvestment@gmail.com

Home Buying Workshop for Artists!

Top 20 Things Every Business Owner Needs to Know

Admin Books out of Morgan Hill, California had a great list of Top 20 Things Every Business Owner Needs to Know, which I share below:

1. Receipts: You are required to have a receipt for every expense. It must be readable. It can be the original or a copy of the original. Copies of a credit card statement with the expense listed is NOT acceptable. 2. Auto Miles: You are required to keep a mileage log. This includes the date, starting odometer reading, ending odometer reading and business purpose. You are allowed to recreate the log using your calendar and receipts. 3. Meals and Entertainment: These two categories are highly scrutinized. You need to track who you had the meal with/entertainment with and the business purpose. You are required to have a quiet business conversation before, during or after the event. 4. Home Office: You can deduct expenses related to an area in your home that you use for business. This specific square footage area can ONLY be used for business, no personal use. It must also be regularly used for business. 5. Officers: ALL Officers are required to be paid via a W-2. If there are no wages processed for the year, you are not fulfilling the corporation requirement. No wage amount is “red flag” to the IRS. 6. Bad Debt: If you file your return on an accrual basis and find that any invoice goes unpaid by your client/customer, you can write off that amount on your return by calling it “bad debt” because you paid taxes on that income in a previous year. If you file your return on a cash basis, there is never any bad debt to expense because you never paid taxes on the income. The amount is non-deductible, like a suspense account to close out the accounts receivable. 7. Credit Cards: Make sure you enter ALL expenses thru the end of the year. Most credit card statements cut off in the middle of the month and many people forget to enter expenses the last few weeks of December. 8. 1099’s: You are required to send out 1099-MISC forms to anyone you paid more than $600 in a calendar year for services. If you do not, you can be penalized for each 1099 not completed. 9. Reconciling bank and credit card accounts: Make sure you reconcile the entire year for every bank and credit card account you have for business. Then, once you reconcile, make sure there are not any un-cleared transactions. If you do have these un-cleared transactions, you will be either overstating your income (and paying higher taxes) or overstating your expenses (and underpaying taxes). Double and triple check this! 10.Gifts: Gifts are deductible up to $25 per person in a calendar year. Any amounts paid over this amount is considered not deductible. The only exception is any gifts given to a business (not individual) that is a corporation. 11.Assets: When you purchase larger items for business, you are required to depreciate them over a period of years. For example, if you purchase a computer for $1200, you need to show this asset on your balance sheet. However, if you purchase a printer, say for $129, it is typical to expense it all in one year. 12.Corporate Minutes: As a corporation, you are required to have annual corporate minutes. You need two documents: Minutes of Shareholders and minutes of Board of Directors. If you do not have these annual documents and are in a legal battle, the other party can “pierce the corporate veil” and your personal assets can be at risk. 13.Loans to Owners: If you loan money to your business, you are required to have a promissory note, schedule of repaying and if the loan is over $10,000, the business must pay interest on the loan. 14.QuickBooks Files: If you track your income and expenses in QuickBooks, make a copy of your file annually. The IRS is now asking for copies of the QuickBooks files. If you have a back up, you can condense the previous year and not have any data for the years after the year to be audited. 15.Life Insurance: Life insurance can be deductible to the business and non-taxable to the employee for any amount $50,000 or less. Any premiums over $50,000 is taxable to the employee. 16.Auto Use: The IRS allows you to take the higher of two deductions when it comes to your auto. You can deduct the business miles driven at the IRS rate for that year OR you can deduct actual costs, like gas, repairs, insurance, and the amount allowed for depreciation. What most business owners miss is the percentage of business use. Usually the percentage is less than 100%. Each owner needs to determine the business percentage for the year. 17.Hiring Independent Contractors: The IRS has 20 factors to determine if a worker is an independent contractor or an employee. You need to know these factors and make sure if you are paying someone a straight check that, if audited, the IRS will not deem them as an employee. If they feel the person hired is an employee, there are high penalties and interest. 18.100% Deductible Meals: We know that when a meal is purchased, it is 50% deductible, however, there are several situations when meals are 100% deductible. • If you distribute food to the general public to advertise or create good will • Require employees to work overtime on the employer’s premises • Company picnics or annual Christmas parties • Coffee, soft drinks or water on the employer’s premises 19.Non-deductible Entertainment Expenses: The following are NOT deductible: country club dues, golf or athletic club dues, skybox or luxury boxes, hunting lodge or yachts. 20.Paying Children in Sole Proprietorship: If you file a schedule C return, you can pay your children wages under the age of 18. There is no FICA or FUTA taxes paid on these wages. The work must be reasonable and age-appropriate. Great deduction for the business and nice earnings to help pay for personal expenses. For more info: Admin Books, Inc. 125 Lindo Lane, Morgan Hill, CA 95037 P: 408.782.9640 | F: 888.459.1117

Washington Landlord Association Winter Conference

Featured speakers at the Washington Landlord Association’s recent Winter Conference included Tim Seth, WLA Executive Director; Faith Lumsden, Seattle Code Compliance Director; Michael Chin, Seattle Office of Civil Rights; Steve Peters, CPA; Rebekah Near, CEO of Orca Screening; Alan Ruder, Attorney; Stuart Sinsheimer, Attorney; Bill Farmin, Process Server; Dennis Helmick, Exchange Facilitator; Craig Hawkins, EnviroShield Clean Up; Leo Birdsall, Fastrak Inspections; Kelly Koontz, Submetering; and Kyle Grinnel, Allwest Public Adjusters. There were approximately 150 members in attendance. Faith Lumsden talked about the new Seattle rental inspection program (see previous blog). Michael Chin talked about the need for non-discrimination in housing and employment, and what would be deemed “reasonable accommodation.” Landlords may not refuse tenants with Section 8 vouchers from applying, nor discriminate on the basis of veteran/military status, sexual orientation or familial circumstance. He also cited the City’s new Safe and Paid Sick Leave for companies with more than four full-time employees. (In a more recent meeting I had with City Councilman Richard Conlin, he talked about the Council discussion to prohibit criminal background from being considered during tenant screenings, as a way of alleviating social issues surrounding re-entry into the community for criminal perpetrators. Not a good idea, he admits, placing criminals in close proximity to potential victims). Both Steve Peters and Dennis Helmick talked about the looming “fiscal cliff” and some of the implications related to real estate holdings. It is expected that the tax rate on both long- and short-term capital gains will be going up; there will be a 3.9% Medicare surtax on investment income (e.g. rents) for high wage earners; the 2% reduction in payroll tax is set to expire; deductions for state sales taxes and mortgage interest may disappear; and there is a dramatic change anticipated in the gift and estate tax, with the exclusion lowering from $5million to $1million and the tax rate increasing from 35-55%. New state law requires the landlord to provide his list of screening criteria to tenants prior to accepting an application screening fee. Rebekah Near cited several examples of criteria that might be considered in screening tenant applicants. Some reasons for denying an applicant may include: --an open bankruptcy --any unpaid apartment collection, or any judgments for prior landlords --unpaid tax liens --if the tenant or any household member is a registered sex offender; has a history of disruptive, malicious behavior that may interfere with the peace and quietude of the community; has past evictions; etc. More free information and forms may be found on her website at www.orcainformation.com. More information on the WLA Winter Conference in my next post.

Mandatory Rental Inspection in Seattle

I attended two big property management conferences in Seattle this week: the Washington Landlord Association's Winter Conference on Lake Union on Saturday, Dec. 8 and the Trends NW Trade Show at the Convention Center on Tuesday, Dec. 11. I will report on the discussions from these conferences over the course of the next few blogs. One of the biggest news items at these conferences was the recent legislation by the City of Seattle to require mandatory inspection of rental units, beginning in 2014. Properties with 5 and more units are to register by 2014, and properties with less than five units must register with the City by December 31, 2016. The City will then require inspections of random units, until every unit has been inspected once or twice in ten years. Faith Lumsden, the new Seattle Code Compliance Director, stated that at this point the City has no ideas what the fees will be. The City Council directed that the inspection program be self-supporting, so fees have to cover the department's costs (which are unknown at this time). It is likely that the owner/landlord will pay to have their own inspection done, at around $300-400 per unit. The reason the City decided to require inspections was to deal with sub-standard housing units within the city limits. This may be only a small fraction of the total rental units, but the City could propose no other approach that would be equitable or fair to all rental property owners. Housing advocates say 5-10 percent of Seattle's 42,000 rental units are believed to be unsafe. The inspections will cover such items as minimum square footage, egress and ingress, provision of heat, water, weather-tight enclosure, etc. "I have great hopes that this program will improve the conditions of renters living in substandard housing. A similar program in Los Angeles has resulted in a $1.3 billion re-investment in the City's rental housing stock while costing tenants in LA less than $13 year," said Councilmember Nick Licata, Housing, Human Services, Health and Culture Committee Chair. Many landlords say those costs will be passed on to tenants.

Real Estate in an Era of Hyperinflation

Today's blog is by guest blogger John Reed, and it is so good, I just had to share:

It looks like real estate investors may have a once-in-a-lifetime opportunity in the present market. I'm not talking about the recent upsurge in home sales or rents in many parts of the country. That is pretty normal during a growth period and at the end of a stagnant period when prices have hit bottom. And there is no shortage of home seekers or investors jumping in. No great opportunity there. But there are two unique, unprecedented things happening. 1. Mortgage interest rates have never been this low. Never! 2. Neither Congress nor the President show any interest in ending their reckless borrowing and spending. Interest rates Interest rates pretty much cannot go any lower. There is no room. Does that mean they will go up? Well, they could also stay where they are. But there is great and growing fear of higher inflation. What is the cure for high inflation? The Fed selling U.S government bonds and raising interest rates. For example, in 1980, we had 13.5% inflation and Fed chairman Paul Volcker raised interest rates such that mortgages averaged 16.55% in 1981. Word to the wise. Buy with a mortgage or refinance to get the current market rates. Hyperinflation danger Our elected officials in Washington have lost their minds. Our current national-debt-to-GDP ratio is 105%. The last time it was that high was 1945—the end of World War II. But it was not a concern then because the war was ending and everyone knew federal government spending was about to plummet. Indeed, federal spending was cut 60% as the soldiers were discharged. But this is not 1945. There is no world war. The "war" in Afghanistan is actually what used to be called a post-war occupation. The active U.S. military today is tiny—1.5 million people which is 1.5 million ÷ 315 million = 7 tenths of one percent of the population. In 1945, we had 12 million in uniform and a total population of just 140 million or 12 ÷ 140 = 9% of the population. Furthermore, 60% cuts were well-known to be coming. Today's Congress and president are not going to cut federal spending 60%. They are not going to cut even 6%. I would be surprised if they cut 6 tenths of one percent! Almost certainly, they will increase the national-debt-to-GDP ratio! In November 2008, that ratio was 75%. Today, it is 105%, a 30% increase in four years or 30% ÷ 4 = 7.5% per year. At that rate we will be at 105% + 7.5% = 112.5% in November 2013 and 120% in 2014—the all-time record hit 1946 just after World War II. Then we're going to 127.5% in 2015. Like I said, Congress and the president have lost their minds. And people who own U.S. dollar-denominated assets are about to lose their asses. Real estate in hyperinflation What about the people who own real estate? I researched that. In Germany and Austria during those countries' early 1920s hyperinflation, real estate owners did very well, especially if they had fixed-interest rate mortgages. Actually, that was the only kind of mortgage back then, but I say it here because we now have adjustables and you profit less in hyperinflation if you have an adjustable-rate mortgage. In theory, real estate holds its real (after adjustment for inflation) value during hyperinflation. In reality, it actually does a little better than that during the hyperinflation because people are so desperate to trade the currency that is hyperinflating for hard assets and real estate lets them do that on a large scale. If you don't sell until after the hyperinflation, that premium goes away. But the main thing is owning real estate that has a substantial fixed-rate mortgage. When you do that during hyperinflation, your real (after adjustment for inflation) equity goes up substantially. The fact is a lot of people got rich in Austria and Germany during their hyperinflation. Same thing happened in Latin America and other hyperinflated countries. The formula is simple: a combination of hard assets or well-managed (by the government that printed it) foreign currency and fixed-interest rate debt in the hyperinflated currency. Basically, during hyperinflation, debts become extremely easy to pay as the purchasing power of the dollar falls. What kind of property is best?Basic-need stuff, like a place to live, farms and ranches that actually produce food or other commodities like fish, game, fuel, or timber, single-family owner-occupied homes. You already have one? Buy another and move into it. You don't have to sell the old one just because you moved. What about rental property? Second best but still probably good to own. It is hard to get a self-amortizing mortgage and balloon payments are even more dangerous in hyperinflation than in normal times because they could cause you to lose the property. Also, the same government that causes hyperinflation almost certainly will enact rent controls as part of their effort to deflect blame for the hyperinflation. In Germany in the early 1920s, they allowed NO rent increases whatsoever during the entire period of World War I and the subsequent hyperinflation—ten years. At the end, tenants who originally paid about 25% of their income for rent were paying only.14%! You also need to worry about your tenants' source of income. If they rely on fixed dollar amount incomes like Social Security or bond interest or annuities, they will not be able to pay the rent. But if you can survive the rent controls, and stay current on your payments, you should profit substantially from rental properties during hyperinflation. Indeed, farm owners and home owners made so much profit during Germany's hyperinflation that some legislatures passed claw-back laws to take back some of those profits after it ended. So if you are or could be a real estate owner, you now have a once-in a lifetime opportunity. Interest rates have never ever been lower and the Congress and president are rushing head-long into hyperinflation. My wife and I just refinanced our home. My son, with my blessing sold his and is trying to buy a bigger one with a bigger mortgage. I suggest you do the same. In the next five or ten years, everyone is going to recognize, in hindsight, what a great opportunity they had back in 2012. Right now, few recognize it. Happy Holidays, John T. Reed

Oil Boom - Housing Boom

According to the International Energy Agency (IEA), the US will overtake Saudi Arabia as the world's biggest oil producer "by around 2020.” The IEA said the reason for this was the big growth and development in the US of extracting oil from shale rock. The US shale oil industry extracts oil from the ground using a method called fracking - pumping down a mixture of sand, water and chemicals at high pressure. This has enabled the US to gain significantly more extractable oil resources. As a result, the IEA predicts the US will become "all but self-sufficient" in its energy needs by around 2035. The industry says the method is safe, but critics say it could cause earthquakes and pollute water sources. More locally, economic impacts of hydraulic fracturing include payments to property owners, an increase in jobs, and an increase in business. The EPA states that it is unclear on a local level how and for how long hydraulic fracturing affects a community economically. It is hypothesized that hydraulic fracturing may not provide jobs to local communities due to the specialized nature of hydraulic fracturing tasks. Also, communities’ local resources could potentially be taxed due to the increase in industry traffic or if an accident occurs. But what specifically are the impacts of fracking on local real estate? Concerns have been raised regarding the terms and clarity of the leases energy companies are signing with landowners, as well as the manner in which they are sold and the tactics used by companies in implementing them. Another question has been the effect the leases can have on mortgages, with some lenders becoming reluctant to loan money "for a piece of land that ends up storing the equivalent of an Olympic-size swimming pool filled with toxic wastewater from drilling" or making mortgages conditional on not signing a drilling contract. Texas, Alaska, California, North Dakota, Oklahoma and New Mexico are the states with the largest crude oil production in the country. The states of North Dakota and Texas had the largest increases in oil production since September 2011, and have helped U.S. oil production increase by more than 900,000 barrels a day. The Eagle Ford Formation in West Dallas is the site of the largest shale oil formation in Texas, and one of the most actively drilled targets for oil and gas in the United States. It is no surprise that the hottest real estate markets in the country right now are those connected to the oil and gas industries. North Dakota, once a sleepy backwater of the petroleum industry, this year surpassed Alaska as the number two oil producer in the United States. The gush of North Dakota crude has helped push the US to its spot as the world's top energy producer within five years. The rich oil patch has turned some of North Dakota into a region that is swarming with armies of workers tapping once unreachable caches of crude. The skyrocketing cost of housing in Williston, ND has sent workers into temporary manufactured housing, and many of the older locals searching for new places to live. New home builders have been slow to respond, mainly because many local home builders went broke in the last oil boom when it went bust in the 1980s. More than 1,100 new homes are scheduled to be built in 2012 but that will hardly put a dent in the number of homes that are desperately needed to house new workers, some of whom have to drive up to 300 miles a day for a place to sleep. Temporary shelters include campers, tents, RVs and cars. Hotels and motels in the western edge of North Dakota’s rich oil patch are booked up for months, and home prices are rapidly rising, a major exception to most of the U.S. So if you are looking for an emerging real estate market in which to invest, look for oil, the new gold rush of the century....

Living in Magnolia

Seattle is a city of great neighborhoods. One of the most desirable neighborhoods is Magnolia, and here is why: Magnolia is a quiet neighborhood nestled along a large park that rests along a bluff overlooking the Puget Sound, where it got its name from the trees - Madronas which a naval geographer in the mid 1800’s mistakenly called Magnolias. Like Magnolias this neighborhood has unusual roots with a flowering community. Magnolia is a peninsula situated on Elliot Bay between Ballard, Capitol Hill, and Downtown Seattle.

Accessible by three bridges‚ Magnolia is a special place to live and visit‚ yet it still retains a small town atmosphere where you can easily get to know your neighbors. At home in Magnolia's four square miles is the oldest lighthouse on Puget Sound, Discovery Park (Fort Lawton), a state-of-the-art water treatment plant largely hidden by foot paths and creative landscaping, and Fishermen's Terminal, which berths much of Puget Sound's fishing fleet. The Magnolia neighborhood of Seattle has a remarkable and unique business district. The center is known as the 'village' and is home to some of Seattle's top award-winning restaurants and coffee shops, well known specialty shops and professional services. The outer rim of this unique neighborhood is home to marine business bordering the Fisherman’s Terminal with docks for the fishing industry. Also, scattered throughout Magnolia are numerous small independent businesses. Discovery Park is one of Seattle’s largest and most beautiful parks, covering 534 acres. There are also a great number of "pocket-parks" throughout the neighborhood. Another popular place is the West Point Lighthouse that was built in 1881. Seafair’s Magnolia Summer Festival in August features juried art shows, live stage entertainment, food vendors, and a sidewalk sale. Throughout the year events are held for the seasons, recreation, and just for fun! The farmers’ market happens every Saturday and hosts a large vendor base. The community support, chamber of commerce, and participation in events and involvement of the Magnolia area makes this a unique and close-knit neighborhood with outstanding views within the big city. Over half of the existing community is made up of families, followed closely by the young single crowd which makes up over 30% of Magnolia. The median income in this area is 40% higher than city and national averages. With a population of about 17,000 the density of people per a square mile is less than half of Seattle’s average. The median rent of this area ranges from approximately $900-$1300, and an average home sales price of $775,000. Magnolia also has a high instance of 3+ bedroom houses, most likely due to the spacious layout and intentions for this neighborhood. Most residents in this area can expect less than a 30-minute commute time to downtown Seattle, and about 10 miles to the airport. For a free list of homes for sale in the Magnolia neighborhood, please contact me directly at HomeLandInvestment@gmail.com or call 425-270-7292.

REITs outperform the Market

Real Estate Investment Trusts Outperform the Market The U.S. economy slowed in the first half of 2012, delivering only tepid growth. The exception, however, is commercial real estate. In 2012, apartment, retail, office, warehouse and other commercial real estate vacancy rates continued to decline, rent growth gained momentum and the stocks of Real Estate Investment trusts – REITs ─ fared well, outpacing the broader equity market. A real estate investment trust, or REIT, is a company that owns, and in most cases, operates income-producing real estate. To qualify as a REIT, a company must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends. REITs are permitted to deduct dividends paid to its shareholders from corporate taxable income. As a result, most REITs historically remit 100 percent of their taxable income to their shareholders and therefore owe no corporate tax. Taxes are paid by shareholders on the dividends received and any capital gains. REIT total return performance over the past twenty years has outstripped the performance of the S&P 500 Index, and other major equity and fixed income indices – as well as the rate of inflation. In the past year, REITs more than doubled the performance of the stock market, delivering a total return of 12.48% to the S&P 500’s 5.45%. REITs help to reduce the risk of overall portfolio losses in volatile markets because they do not always move in tandem with other equities. Equity REITs generate a consistent stream of cash mainly by collecting rents from multiple tenants occupying the properties they manage. Since they must pay out at least 90% of their taxable income annually as dividends to shareholders, a larger share of REIT investment returns come from dividends when compared with other stocks. REITs provide a natural hedge against inflation in ways that match up well with investors’ needs. Commercial real estate rents and values tend to increase when prices do, which supports REIT dividend growth, providing retirement investors with reliable income even during inflationary periods. In all but two of the last 20 years, REITs’ dividends have outpaced inflation as measured by the Consumer Price Index. “The REIT yields are very attractive compared to anything else in the market,” says Brad Case, vice president of research and industry information for the National Association of Real Estate Investment Trusts. REITs are essentially a hybrid investment, embodying aspects of fixed income investments, with their consistent, strong dividends, and equities, with their ability to produce long-term capital appreciation through effective management of the corporation. Demonstrating once again that investment instruments secured by real estate are among the best investment options available to investors.

Institutional Investors Rush to Residential Foreclosure Market

National Public Radio reported today that the inventory of pre-foreclosure homes has increased 22%. That is because lenders have discovered that it is often less expensive to accept a short sale, rather than foreclose on a property. A "short sale" is a real estate transaction where the underlying lien holder (the lender) agrees to accept less for the house than what is owed. As the inventory of foreclosures, pre-foreclosures, and bank-owned houses has increased, institutional investors have rushed into the market (perhaps in response to Warren Buffett's comments in February about the investment opportunities with single family homes? see our previous blog on this topic). Here are some snippets from the national media about this change: "Large Wall Street investors rushing into the foreclosure market have raised between $6 billion and $8 billion, with the intent to acquire between 40,000 and 80,000 foreclosed homes nationwide in the months ahead." - Housing Wire "Landlords have always tended to be mom-and-pop outfits. That appears to be changing. Fast." - Fortune Magazine "The business of buying foreclosed homes, renovating and renting them out is morphing from a largely mom- and-pop business into the next big thing on Wall Street." - CNN Individual investors are finding it difficult to compete in this market, where the institutional investors can come to the table with quick and ready cash. In order to compete, individual investors with ready access to cash are the most likely to succeed in this arena today.

Local Housing Market Improvement

The most recent news update on the local housing market, from the Northwest MLS:

High demand, low inventory sparking multiple offers, market momentum
KIRKLAND, Wash. (Dec. 5, 2012) – Real estate brokers expected some seasonal slowing during
November, but last month’s falloff was less than what some industry veterans anticipated. Members of Northwest Multiple Listing Service reported 6,522 pending sales last month -- the highest total for
November in six years.

“The market is done with needed correction,” declared one broker.

New figures from the MLS show last month’s pending sales rose 6.9 percent compared to a year ago, and was the best November for mutually accepted offers since 2006 when members tallied 7,022 pending transactions. As expected, the volume dropped from October’s total of 8,312 pending sales.

Closed sales and selling prices both rose during November versus a year ago, while the selection
continued to shrink.

“There continues to be extremely low inventory levels and high buyer demand which is causing multiple offers in many local areas,” reported OB Jacobi, president of Windermere Real Estate. He also noted a “definite uptick” in the number of cash buyers, “many of which are investors.”

Commenting on the expected dip in activity, Jacobi, a member of the Northwest MLS board of directors, said it “was less than we usually experience during this time of year.” Based on the current combination of sparse inventory and high buyer demand, Jacobi said those who are considering selling are encouraged to “list their homes sooner rather than later” in order to take advantage of unique market conditions.

MLS members across the 21 counties in its service area added a paltry 5,315 new listings to inventory last month. That compares to 6,043 additions for the same month a year-ago. Notably, both the number of pending sales (6,522) and closed sales (5,333) outgained new listings, contributing to a market imbalance. Inventory, which typically shrinks during the holidays, totaled 21,042 active listings, plummeting more than 31 percent from twelve months ago when the selection included 30,650 listings. Condo inventory is at half the year-ago levels.

Northwest MLS director George Moorhead said many buyers are complaining about the “limited quality inventory,” prompting “aggressive multiple offers on well priced homes.” Moorhead, the branch manager at Bentley Properties in Bothell, cautioned there is still a huge shadow inventory of bank owned homes, but he expects they will be put on the market “at a trickle to mitigate any adverse impact on the market.”

System-wide prices on last month’s 5,333 closed sales of single family homes and condos jumped 14.9 percent from a year ago, the largest year-over-year increase since July 2006 when prices surged 15.5 percent. Twelve counties reported double-digit gains in the number of closed sales compared to the same month a year ago.

Area-wide, the median sales price on last month’s closed sales of single family homes and condominiums was $258,500. Last month’s price gains on these closings were led by Jefferson County (up 26.2 percent), Grant County (up 23.5 percent) and King County (up 21.8 percent).

Single family homes sold last month for a median price of $269,000, while condos fetched $185,000.

In King County, single family homes that closed during November commanded the highest price at
$385,000 (up 19.7 percent), edging out San Juan County’s median selling price of $375,000.

Frank Wilson, another MLS director and the branch managing broker at John L. Scott Real Estate,
described the current market as “the best of most worlds: low interest rates, a supply of homes to choose from that are aggressively priced, and lenders who are beginning to engage in ‘make sense’ loans.”

Moorhead noted short sales are up significantly from two years ago “and now outpace bank owned (REO) listings,” prompting outreach to hesitant sellers. “We all have a call out to sellers who are on the fence to remind them this is the first ‘sellers market’ we have seen since 2007. This also means sellers who were on the edge of being in a short sale situation may actually be on the positive side of the ledger,” he added.

Commenting on the recent uptick of investors and cash buyers, Jacobi said there is good reason for that. Following a prolonged decline, real estate investors are usually the first to re-enter the market. “This is because investors are generally less concerned with timing the bottom of a market perfectly and more focused on the longer term financial benefits,” he explained, adding, “ Many investors also believe their cash is better invested in real estate than money market accounts, where it might actually be losing money given the current rate of inflation.”

Wilson echoed Jacobi’s assessment. “With the population of renters expected to grow for the next 3-to-5 years, now is a good time to buy a rental and let someone else make the payments,” he stated, adding,“With so many people having lost their homes and now having marred credit, they will become renters for the next few years as they get their foreclosure, short sale or bankruptcy behind them.”

Northwest MLS director Darin Stenvers believes the market is done with needed correction, saying “the bottom has come and passed. We are seeing some new loan programs designed to help first time homebuyers that have low debt, strong income and high credit scores,” he remarked. Stenvers, the office managing broker at John L. Scott in Bellingham, said these programs should help consumers benefit from a loosening of lending guidelines, leading to more closed applications and fewer failures of existing transactions. “Now is a great time for buyers and investors,” he exclaimed.

Looking ahead, several MLS directors expect the recovery to continue:
 George Moorhead: “We are seeing some well-deserved price stabilization, and consumer
confidence has been on the rise since first quarter.”
 Frank Wilson: “To have this kind of market momentum going into 2013 is very exciting.
Provided we don’t fall off a ‘fiscal cliff’ we should have a good year in real estate.”
 Darin Stenvers: “Buyers should be considering their purchase as an investment. If they see a
home that fits 75-80 percent of their criteria they should strongly consider that purchase and pull
the trigger. Foot dragging or shooting out lowball offers is leaving many empty handed.” Noting
“the perfect storm has been brewing,” Stenvers said existing homes sales are on pace with 2003-
2004 ( pre-bubble) volume “but we are enjoying interest rates that are 1.25 to 2 percent lower.”

Northwest Multiple Listing Service, owned by its member real estate firms, is the largest full-
service MLS in the Northwest. Its membership includes more than 21,000 real estate brokers.
The organization, based in Kirkland, Wash., currently serves 21 counties in Washington state.

Why Real Estate is the Best Investment

Why Real Estate?

Remember the four components to real estate investment: Appreciation, Depreciation, Income (aka cash flow), and Equity Build. 

Rental real estate investment increases in several ways – primarily through net profit, and through principal payments. The renter pays the owner’s liabilities (interest, insurance, property taxes, and any mortgage insurance), plus net profit. In addition, the renter also pays down loan principal. 

What that means is that the amount of the asset owned increases, plus the owner/investor makes a profit. It's similar to the premise that your stock will rise in value exponentially, AND pay a dividend. Plus, after 30 years (or whenever the loan is satisfied), the investor’s net profit drastically increases when the interest and principal payments end, oddly enough right around time for retirement (if the owner started investment in his/her 20s).

Real estate in North America has traditionally outperformed or similarly compared to the stock market in the medium and long-term. When properties are leveraged (i.e., financing is used to purchase properties) real estate investments have substantially outperformed all major stock indices.

It is clear from the chart below that unleveraged (0% debt) real estate has yielded significantly higher returns for more than 5 years and 50% financed real estate has returned higher yields than the stock market over any period.

The chart below illustrates historical returns of real estate vs. stocks and includes the major North American stock indices as comparisons.

The figure below illustrates the typical growth rate for 50% leveraged properties in North America. However, many real estate investments are financed to a much greater extent: often up to 80%. Using more financing will increase returns well above those shown below.

It is clear that, particularly with the responsible use of financing, investments in real estate significantly outperform investments in stocks over time.

The tax benefit to rental real estate is equivalent for high income investors compared to dividend-paying stocks. Subject to recent (and probably outdated understanding of) changes to dividends, higher income earners may or may not be phased out of lower dividend tax rates.

Some investors prefer real estate because the probability of losing the investment is nil. Houses don't just go bankrupt. You may lose value, have net losses, or suffer a natural disaster, but you typically won't lose the asset.

First Time Homebuyer Workshop for Artists!

Mark your calendars now!

First Time Home Buyer Workshop for Artists

Sponsored by Artist Trust

Using “Square Feet Seattle” as the curriculum

http://www.seattle.gov/arts/space/sqft_seattle.asp

6-8pm, Thursday, January 10, 2013

Velocity Dance Center, 1621 12^thAvenue, Seattle

$8, members; $10, non-members

Presenters:

Artist Trust

Wendy Ceccherelli, Owner/Broker, ArtHaven

Garbo Grossman, Community Homestead

Michelle Taul, Mortgage Lender

Agenda:

(0:00-0:10)          Welcome, Introductions, Purpose of Workshop (Artist Trust)

(0:10-0:20)          Square Feet Seattle: Table of Contents (Wendy Ceccherelli)

(0:20-0:30)          Chapter One – Getting Ready (Ceccherelli)

(0:30-0:40)          Chapter Two – Worksheets for Buying and Leasing (Ceccherelli)

(0:40-0:45)          Chapter Three – Credit (Ceccherelli)

(0:45-1:00)          Chapter Five – Finding Property (Ceccherelli)

 (1:00-1:05)         Chapter Four – Working with an Agent (Ceccherelli)

(1:05-1:10)          Chapter Eleven – Ownership Models (Ceccherelli)

(1:10-1:30)          Chapter Eight – Buying Residential Real Estate (Garbo Grossman - Community Homestead)

            Resources of Seattle’s Housing Department

Down Payment Assistance Programs

(1:30-1:50)          Chapters Nine and Ten – Residential Mortgages (Mortgage Lender)

(1:50-2:00)          Q&A

(02:00)  Adjourn