June 11, 2008 · 10:16 pm

Will TICs Soon Be Fair Game For Real Estate Brokers?

I’m a big fan of the concept of TICs.  TICs are Tenants In Common.  Another term that may be used is Syndication.  But the IRS says Tenants In Common so that’s what we will use here.  The practice of TICs however isn’t so great.  At least from a real estate broker’s point of view.

The Problem
The IRS looks at TICs as real estate.  The SEC looks at TICs as securities of a whole.  Both want jurisdiction over the situation.  And therein lies the problem.   (This is a very brief synopsis.  For all the details of how TICs came to be, the road hazards and where we may be going please click this helpful link regarding Tentants In Common.) 

Most people selling TICs will not pay me a real estate commission because they feel that they would be violating SEC/NASD rules and regulations.  And if they take the stand that TICs are real estate and they are ruled to be wrong they open themselves up to massive litigation as well as myself. 

Why The Concerns?
It sort of peeves me that the SEC wants to keep real estate brokers out.  Really.  Who would know more about how to evaluate an income property?  A securities dealer or a real estate agent/broker who works with income properties?  Please. 

Solution
I have heard several times this week from several different sources that there could be a solution around the corner.  It seems the National Association of Realtors has finally been earning some of their money by trying to come to some sort of compromise on this situation with the SEC.  And at least one website is touting that the happening is just around the corner.  There will be an exemption for commercial real estate brokers.  Will I qualify?  I certainly hope so.  I’m not sure how they will regulate that since there is no separate commercial license from the residential license.  A real estate license is a real estate license.

Why This Matters To You
3 choicesSome of you have tons of equity tied up in under-performing properties.  And perhaps you are approaching a time of your life when you’d like to make your “passive income” really passive.  By selling those 5 fourplexes in Olathe you can take the equity and 1031 tax defer it into a TIC.  The TIC would likely be a share of a warehouse or shopping center or oil and gas leases.  Or what if you identified a TIC as one of your three options.  An emergency back-up, if you will, in case the other two income properties don’t work out.  But you won’t hear too much about Tenants In Common until real estate agents start getting paid to tell you about them. 

Face it.  It’s free enterprise at work.  For better or worse.  After all, I study this stuff.  I evaluate the property.  I throw away the bad and bring you the good.  Think all TICs are the same?  Think again.  Why shouldn’t I get paid for my expertise just like if I helped you buy a small shopping center. 

2 Comments

Filed under 1031 Exchange, Legal Issues, Real Estate Investing

June 11, 2008 · 8:41 am

Olathe, Kansas: Spotlight On Why I Like This Real Estate Market

Olathe KansasOlathe, Kansas has been mentioned by me time and time again as a real estate market that I am enamored with.  Sure, I live here.  But there is much more to it.  For real estate investors and Joe & Mary Homebuyer alike Olathe offers the opportunity for solid appreciation even in these tougher times.  If it’s alright with you I’m going to take a minute and show you (and link you) to what I’m talking about.

Top 15 City in America
As recently as 2006 when CNNMoney ranked the Top 100 Cities in America, Olathe finished #13.  Neighboring Overland Park finished #6.  Olathe currently has a population hovering around 114,500 (up 2,400 since 2006) and a Median Family Income right around $79,100. 

Olathe Housing Stats
The Kansas City Star’s zip code appreciation map shows the two predominant Olathe zip codes with appreciation over the last year.  66061 came in at 4.3% while 66062 came in at 7.6%.  Olathe Housing Stats smallAnd as you can see by clicking on the image for Olathe Housing Stats for the last six months that we are still  selling homes at a pretty good pace.  I showed here on our Olathe Real Estate blog that inventory for single family homes is at about a four months.  Technically, still a Seller’s Market even though people got spoiled by the markets of past years where you would sell a house in 45 days or less, sometimes. 

Garmin OlatheOlathe Job Growth
Olathe is really doing well in the Job Growth category, as well.  I’ve written here before how Ft. Dodge Animal Health has moved in.  Along with Farmer’s Insurance.  A multitude of call centers are relocating to Olathe, too.  US Bank has a large tech center here in Olathe now.  And we haven’t even mentioned that the world headquarters of Garmin is located right here in Olathe. 

Jobs seem to be coming to Olathe every month.  To keep up with the growth of jobs in and around Olathe I would encourage you to visit the Olathe Chamber of Commerce’s Breaking Newspage.  I think you’ll find the website by the Olathe Chamber to be very easy to navigate and one of the most informative Chamber sites I’ve ever visited. 

Olathe’s Quality of Life
Want to know the reason I live in Olathe?  The Olathe School District.  Period. As a father of four (two with special needs) I needed a school district that could work with my children.  We interviewed the three predominant school districts in Johnson County, Kansas and felt strongly Olathe was where we could be best served.  Because in addition to the two special needs kids we have one that is on an Advanced Placement path.  And as we enter his high school years he is going to get to take advantage of the Olathe School District’s 21st Century Program.  He’ll be taking part in Olathe Northwest High School’s e-Communications Program.  We can hardly wait.Olathe Homes

In addition, Olathe is easy to navigate.  Has quite a few parks for your enjoyment including Heritage Park, the Indian Creek Trailway and Frontier Park where the City hosts a series of free concerts every year.  I’m usually in attendance. 

Olathe’s Potential For Real Estate Investment
Olathe is not a “cash flow” city.  At least in my mind.  It will usually take you about 20% down to break-even on a duplex here or about 25%-30% to break-even on a single family house.  But having said that, there are few areas around Kansas City…or the Midwest for that matter…that you are going to get better long term, steady growth. 

So for my investors I will usually recommend they have only part of their portfolio parked in Olathe.  If you own five investment properties I might recommend two be in Olathe and the other three be in cities where you will be able to leverage your money more in the 90% LTV range.  Because just like it’s nice to diversify your investment holdings it’s nice to diversify your real estate investments.

A for instance would be of a “pocket listing” I have.  It’s a duplex with 2 bedrooms and 2 baths per side.  Rents are a steady $750 with vacancies nearly non-existent.  So you have a Gross Scheduled Income of $18,000.  Asking price is $191,000.  Your Gross Rent Multiplier is 10.61.  Not too shabby. 

Closing Thoughts on Olathe
I hope you have enjoyed our little tour of Olathe.  If you are thinking of moving to Olathe take some real time to follow the links and explore our city.  Give myself or our team a call or contact us if you need help selecting housing that is suitable for you and your family. 

If you are a real estate investor be sure to ask for specific examples if you are looking to add a rental property or two to your investment portfolio. 

2 Comments

Filed under Kansas City neighborhoods, Olathe

June 10, 2008 · 7:41 am

It’s The End Of The World As We Know It

It’s the end of the world as we know it.
It’s the end of the world as we know it.
It’s the end of the world as we know it.
And I feel fine.
                                   …REM

Bad tomatoes.
$130 a barrel oil.
$4.00 – $5.00 gasoline.
Soaring energy costs for the home.
Soaring bread prices.
Unemployment pushing up to 5.5%.
Illegal immigration.

Don’t lose hope.  I’m old enough to remember the economy in the late ’70’s and early ’80’s.  I remember my parents feeling a bit hopeless regarding the economy and America’s place in the world.  In comparison to the world our lives are still downright cushy.  (And the worst part of the ’70’s, in my opinion, wasn’t the high inflation or energy costs…it was disco!) 

This too shall pass.

Do plan for the future.  Do position yourself to capitalize on the rebound.  Do make sure you are putting away enough in savings for upcoming unexpected events and/or costs.  Do take your retirement into your hands and put more money into your retirement vehicle whether that be stocks, bonds, mutual funds or even real estate investing. 

 

2 Comments

Filed under Personal Real Estate Opinions

June 9, 2008 · 6:31 pm

Real Estate Investing Benefits

Once again, the Four Benefits of Real Estate Investing are as follows:

  1. Cash Flow Before Taxes
  2. Principal Reduction
  3. Tax Benefits/Depreciation
  4. Appreciation

Cash Flow Before Taxes
Take your total monies collected, subtract ALL of your expenses and what you have left is Cash Flow Before Taxes.

Principal Reduction
The amount of principal your loan was reduced by in any given period of time.  If the house is empty, you are reducing the principal.  But if you have tenants in your rental property then THEY are reducing your principal.  Be sure to thank them!

Tax Benefits/Depreciation
Your Net Operating Income minus your interest paid minus your depreciation schedule gives you a number.  Take that number and multiply by your tax bracket.  If it’s a positive number that is your tax.  A negative number is your tax savings.  Cool, eh?

Appreciation
A lot of people think this is where the money is made.  And it can be.  But take my word for it.  You need to make sure whatever property you buy makes sense based on the previous three benefits.  Then if you have hard times you still have positive capital growth.  When we return to good times this will be the icing on the cake that allows you to eat at Ruth’s Chris rather than the Sizzler. 

Kansas City real estate investing needs not to be complicated.  Just know the returns you are after, plug in the numbers and see if they work.  If the numbers don’t work you move on.  If they do work you’ve probably just identified your next investment property. 

7 Comments

Filed under 4 Benefits of Real Estate Investing

June 9, 2008 · 8:11 am

Kansas City Investment Property

Kansas CityI was reminded again all weekend long how lucky those of us that live in the Kansas City area have it when it comes to investment property ownership.  As many of you know I love talking with Jeff Brown regarding investment property.  When we talk single family homes he says “no way” in San Diego.  I know the same is true throughout much of the coastal areas. 

It seems, however, that in many/most places between the Ohio River and the Rocky Mountains that we can choose to own single family homes as investment property.  Sure, it takes a little more up front capital to make the numbers work for you and not against.  But really, is putting 20%-25% down on a vehicle that will take you to retirement such a horrible thing? 

Depending on your situation I may sometimes recommend 10% down on a duplex.  Other times I may recommend 25% down on a single family home.  Especially if we can pick up the rental home $10,000, $20,000 or even $40,000 below market.  No, you will not be able to turn it around and sell it right away for a profit in this soft market.  But what that the intent anyway? Airline to Kansas City

Think golf.  Different clubs for different results.  California real estate investing has a pretty narrow scope, now.  Maybe one or two clubs left in the bag.  But the California real estate investor, like the Maryland real estate investor, does have a choice.  Get on a plane.  Visit Kansas City.  I think you’ll like what Kansas City has to offer in the way of investment property.

5 Comments

Filed under Investment Property, Kansas City Real Estate, Real Estate Investing

June 5, 2008 · 7:11 am

It’s My Investment Property And I Say No Pit Bulls…Period

Pit Bull AttackHad a call from a neighbor the other day telling me that a tenant in one of my investment properties had a newly acquired pit bull.  First, my lease says no dogs without my approval.  Second my lease says specifically no dangerous breeds and that landlord gets to decide what is dangerous. 

I deem pit bulls to be a dangerous dog.  I’m sure pit bull lovers will eventually find this post and give me all their reasons they are just misunderstood.  Can some one tell me one other breed of dog as vicious as the pit bull?  Just one.  Sorry, but the ongoing debate is just silly to me.  These dogs were bred to be vicious and to kill.  It makes me sick to my stomach when I hear of yet another innocent person being attacked by them.  There is story after story.

The tenant was given 24 hours to get the pit bull out of my investment property here in the Kansas City area or eviction would begin immediately.  No ifs, ands or buts.  I don’t want the liability or the responsibility or the guilty conscious if something were to ever happen.  Hell, these dogs turn on their own owners sometimes. 

56 Comments

Filed under Misc. Real Estate, Property Management

June 4, 2008 · 2:03 pm

Continuing Education For The Professional Real Estate Agent

Kansas City for leaseContinuing education for the professional real estate agent can be a blessing and a curse.  As a consumer you want your real estate agent to be up to date on the latest rules, regulations, laws and techniques for helping people to buy or sell real estate.  Sadly, most continuing education classes offered leave a lot to be desired as they are geared towards the newer agent.

Today, however, I attended a Commercial Leasing class put on by the Kansas City Regional Association of Realtors.  It was a very good class.  The best part for me was being able to network and learn from some of the commercial agents in the room.  A lot of the class was review. But there were more than few “ah ha’s” that came as a result of listening to differing ideas and techniques used by the commercial boys.  (Oh, and girls.) 

We all have professions where we constantly strive to improve ourselves.  It is my continuing hope that I can bring more and more commercial real estate values and principals to the residential side of real estate.  It makes a huge difference in allowing me to help the Kansas City real estate investor maximize their investments. 

1 Comment

Filed under Misc. Real Estate