Real Estate Investment - When is the Bottom Really the Bottom?

The real estate market continues to spiral downward on its way to bottom. Every day, the press continues to report more and more bad news. Foreclosure rates are up and home sales are down over last year. "Short sale" has become an all-to-familiar phrase in the industry. The question that is being asked is, "When will the value of real estate stabilize?" Can anyone accurately predict when the market will actually will reach bottom?

The press and most others are not asking the right questions. The real estate market should not be considered as one giant ocean without tributaries, but rather as streams and rivers representing local markets that flow together to form that larger body known as the real estate market.

In some small towns, the local market can be made up of an entire town. It doesn't matter whether the house is located on "A" Avenue or clear cross town on "P" Street. Relative value would not be affected by location. In larger towns or small cities, neighborhoods would govern "locational" values. While in larger cities, two perpendicular streets may each have different value.

The type of real estate investment also reflects what market a property is in. A single family house, an office building or a mall are all different markets even if they are in the same town or neighborhood. Each property's value will depend on these factors. Is there any wonder why it is so hard to predict when the nation will hit "bottom"?

Real estate is a unique form of investment. As I have written, it takes many different forms when considered as an investment. If you consider income producing properties, then the value can only ultimately increase as much or as fast as the income it produces. The market corrects relatively quickly because the income of the property can not sustain the debt service on the borrowed funds at the inflated price. Investment real estate is a business, i.e. income must be more than expenses in more years than not to be sustainable. Consequently, you can only hype that product for so long before the bubble pops.

The home market is a different story. It takes longer to correct because it is farther away from a "perfect" market. Primary or secondary residential properties do not produce income from tenants. However, they do have expenses such as real estate taxes, insurance and debt service. As prices for these properties escalate, so do the expenses, especially the debt service. However, as prices escalate, fewer and fewer people can afford to buy the asset since, in a perfect market, they would not qualify for financing. As we saw, though, this controlling mechanism was abated by banks and government lowering lending standards, reducing down payment requirements, and having low initial interest rates on loans. These artificial mechanisms allowed more and more people to qualify for homeownership which then consequently bid up the value of homes to an unsustainable high. When the inevitable downturn occurred due to the combination of oversupply, the price of oil and higher interest rates, the boom turned to a bust and we have a falling market.

Many factors will influence when the bottoming of the broader market will occur. That question, like others posed by the press, is irrelevant to the investor. You can not time the real estate market any more than you can time the stock market. Each purchase or sale must be evaluated through the unique prism of the time, place and circumstances when it is occurring. If, after thoughtful analysis, it doesn't make economic sense, then the investment should not be made or a current holding should be sold. Too often we see what we want or hope to see rather than what is actually there.

Thomas F. Campenni CPM, CCIM has more than 35 years of experience as a broker and is licensed in Florida, New York, New Jersey and Connecticut. Since 1992, Tom's focus has been working with a smaller client base so that he can provide the kind of individualized service that results in greater return for his clients and, consequently, greater client satisfaction. In addition to his real estate brokers' licenses, Tom also holds insurance licenses in New York and Florida and has earned the CCIM (Certified Commercial Investment Member) and CPM (Certified Property Manager) designations. Please visit http://www.thomascampenni.com or email him at Tom@thomascampenni.com for additional information.

Real Estate and Homeowner News & Knowledge

eNeighborhoods Neighborhood News

Buyers and sellers find balance as housing market cools

For the last few years, residential real estate burned hot in the headlines with speculation, soaring property values and brisk sales. But now, with mortgage rates rising and sales slowing in many areas, the tide is turning. Clearly, with homes selling at a slower pace, buyers have some additional leverage to apply at the bargaining table.

With housing inventory up, buyers typically have a larger selection to choose from, and more time to make buying decisions. Also benefiting most homebuyers is the lack of competition from speculators. As home prices shot up in the last few years, it was possible for investors to "flip" properties by buying and quickly reselling at a profit, but current market conditions make this practice much more difficult.

In fact, a time-tested strategy to maximize returns on residential real estate is to simply stay put. Just like buy-and-hold investors, homebuyers who keep their homes for more than five years are much more likely to see profits than those who buy and sell in a shorter time period.

But that doesn't necessarily mean the party's over for sellers. Nationally, home prices have remained solid and a well-priced home in a desirable neighborhood should move quickly regardless of current conditions. And though interest rates are rising, they are still low by historical standards...as anyone old enough to remember 30-year mortgage rates north of 16 percent in the early 1980s can attest.

Did you know?

After raising the Federal Funds interest rate 17 straight times in 27 months, the Fed left it at 5.25 percent in early August, saying it wanted time to study the rate's effects on inflation.

Has your home insurance kept pace with property values?

Homeowners policies are long, complicated documents that aren't exciting to read. Many people avoid them because they feel confused by the language and complexity, but there are some basics every homeowner should know. For example, in case of a total loss, does your insurance enable you to rebuild a comparable house in its place?

In many areas, home values have soared in the past few years. If you're fortunate enough to live in such a neighborhood, now is the time to check with your insurer - not after you've filed a claim and learned your coverage isn't up to par.

If you're not sure, ask directly what your replacement policy covers. You may be surprised to learn that "cash" or "fair market value" may not replace all that was lost. For example, fair market value factors in wear and depreciation, so you might receive what your furniture and appliances were worth before being damaged, not what it cost to replace them after. Ask your insurer if your policy includes "full replacement value" for your home's contents.

If you've taken advantage of low interest rates to remodel or upgrade your home, check with your agent to make sure you're covered for the full value you've added. You may need to produce documents or receipts for any renovations.

Charles Warnock is a real estate writer and interactive marketer at eNeighborhoods, the leading source of marketing tools for real estate professionals. Visit http://www.eneighborhoods.com to learn more.

Tips for Choosing a Real Estate Agent - Independent Versus the Broker Franchise

The general rule is that it's the agent, not the office that's most important. Go with the best agent you can find, independent or franchise. However, if you don't know any agents and can't get a recommendation, the national franchises usually maintain at least minimal quality con­trol, have procedures that protect both them and you, and usually have heavy errors-and-omission insurance in case one of their agents makes a bad mistake.

Today it's very hard for an independent office to survive. National franchises such as Coldwell Banker, Century 21, R/EMax and others offer heavy advertising, name-brand recognition, and legal support and associated services to agents. They often overwhelm small independent offices with their competition.

As a result, most agents today in most areas belong to a franchise of one sort or another. My own experience has been that only those independents that are either extremely strong, with excellent agents, or very weak, with poor agents, have not been gobbled up by one or the other of the franchises. That usually means that if you're dealing with an independent, you've probably got the best, or the worst, of the field.

It's important to understand, however, that although you may go with a national name in real estate, in most states you're still dealing with a local office. For example, a broker friend of mine had successfully operated an independent office near Los Angeles for over 20 years. He had seven agents working full-time for him, every one a winner.

However, he decided that he could make more money with less effort by associating with a national franchise. So one day, he simply converted. His office now bears both the national name and his own name. It's a fran­chise, he's still the broker in charge and the agents are the same. He operates under the umbrella of the national firm, which provides the support noted above, but you still deal with him or one of his associated agents. In a sense, you're getting the best of both worlds.

Except... the national franchise has strict rules regard­ing the amount of commission charged, how deals are handled, where escrows are placed, and so forth. My friend no longer has the flexibility he once had to tailor-make a deal to suit his clients and customers. Today, he follows the rules. This sometimes benefits those clients and customers, and other times it causes them grief and produces a poorer result.

Gary writes for My Hawaii Real Estate where you can find Oahu homes for sale in the all the major islands. Review real estate on Oahu along with our MLS search for Honolulu real estate listings.

How To Use Your IRA To Buy Real Estate

In life there are a lot of things we learn by accident, which can be very beneficial to us. Sometimes understanding these processes can take a while. Sometimes after proper explanation ...BLAM, you get it. That is exactly what happened to me. When I first heard about the topic, I will discuss in this E-book, it was perplexing, however, I knew that it could reap huge rewards in the future. It took a while for me to understand the process. I remember trying to tell a buddy who owned an apartment building about _________ and what it could do for him. I remember getting it all confused (like telling someone a good joke, but while you are trying to say the good joke, in mid sentence you realize that you don't remember it all and it is not coming out right, so you just say forget it because you are screwing the joke up). Fortunately, by mistake I came across the company Pensco Trust who has educated me on this great opportunity of____________. I am considered one of their "Preferred Professionals." My learning curve is your benefit. Enough with my teasing games, the purpose of this E-book, is to educate you on Self Directed IRAs. So buckle up!

This publication is made to provide basic information in regard to Self Directed IRA's. It is presented with the understanding that I am not engaged in rendering accounting or legal advice. If you need legal advice services of a proficient professional should be contacted. I can not in any way guarantee that this material will be properly used for the purposes intended and I assume no responsibility for its correct and proper use.

We all know that Social Security (SS) is struggling and the money there will eventually disappear. Prior to 1935 there was no personal SS. All that existed were people saving their money in their bank/under the mattress. In 1935 SS was created. Remember that this was the same time period of the Great Depression. Keep in mind the life expectancy back then was like 62 years old. Now it is 76. Baby Boomers make up a huge portion of the population. Baby Boomers are retiring everyday. You want some hard facts? Well according to Research Corporation Study: The New Landscape of IRA Rollover © 2005 BISYS Retirement Services.

o The first of the baby boomers reached age 59.5 in July 2005

o 4 million more will reach age 59.5 each year

o 24 million people will reach age 65 by 2010

o 55% plan on to work after "retirement"

Now on the flip let's say there was no problem with SS. Have you ever talked to someone who gets SS checks? They don't get a lot of money. It is sad sometimes. I am not trying to offend anyone, but the majority of the older people you see at Wal-Mart greeting you and marking your receipt didn't have a "nest egg" to rely on when they "retired". The topic I will discuss will prevent that from ever happening to you and I.

1974 congress created IRA (Individual Retirement Account) to supplement Social Security. We know these are programs to help shelter money away for tax benefits. Typically people go after the traditional investments. We always hear about stocks, bonds and CD's. Yes all investments have risks, but the thing about these investments is that you can not affect the outcome of the business/your return. You are a spectator, watching the game. Also, you can't use leverage (an example of using leveraged will be discussed later). Also, with stocks if any little blip in market occurs, like oil, war, scandal, etc. your value could go down. Real estate does go up and down but generally you don't lose all of your money in worst case scenarios. Real estate appreciation has kept pace or exceeded inflation. It is a cycle. When it goes down, the value does not go down instantly (like Enron).

Self Directed IRA (SDI) an overview. Now I am not bashing stocks, I have them, if you talk to any financial planner, they will tell you to always be diversified in your investments. This is what SDI does for you. Ideally you should have SDI, stocks, bonds etc.

SDI has been a well kept secret. Why? I think it is because of ignorance, and I also the folks on Wall Street don't benefit. A broker at an investment company will not tell a person about it, because they can't make money off of the transaction (let alone having them understand how it works). The last reason is because there are "professionals" who don't have a clear understanding on its use.

To get a SDI, you would either have to go through an Administrator, or a Custodian.

What is an Administrator? Banks, brokerage firms (like Charles Schwab) and insured credit unions.

What Is A Custodian?

There are very few self-directed IRA/401k custodians in the United States. In order to be a custodian for self-directed products, the custodian is known as a "passive custodian." This simply means that they are obligated by law to provide only custodial and administrative services for the qualified plan. They can provide NO investment advice. This tremendously reduces the fees associated with traditional investments because you, the investor, make all of the investment decisions. They are also FDIC insured.

What is the role of the custodian

o Holds your IRA assets

o Performs all IRA transactions

o Keeps all IRA records

o Provides all IRS required reports

o Keeps IRA plan in compliance

o Provides access online access

There are only three things your SDI can't invest in and they are

o Collectibles/antiques

o Life insurance

o Stock of a sub-chapter "S" corporation (these are companies that are traded publicly on the stock market)

As long as the transaction is for investment purposes and you have not created a "prohibited transaction" (will discuss later) the list of investments are endless.

The beginning of a long list of real estate you can buy with your SDI

o Foreclosures, Options, Pre-construction, raw land, apartments, offices, strip malls, mobile homes, public storage, any type of investment property

o Trust deeds/mortgage notes

o Privately held C-Corp stock, LLC membership

.

The rules on prohibited transactions

o Cant buy from or sell to a disqualified/prohibited person

o Cant make personal use of property

o Cant use SDI as collateral for personal loan

Personal use prohibitions

You can't personally use a vacation home. Even if you rent it out for 354 days and spend one day in it, this is illegal. You can't perform maintenance on the property. You can hire a maintenance crew using the money coming out of your SDI, but you can't physically work on the property. You also can't hunt on raw land, dock boat at a SDI owned boat slip. There was a person, who worked with Pensco, that bought a specific area of a water fishing spot in Alaska. The person, couldn't fish there, so she leased out the area to other fishermen and received profit.

More on disqualified persons

You can't buy from a person providing services to the investment. It has to be a clean slate. It can't be business between employer and employee. If you have your SDI in an LLC and you want to buy property, you will not be able to if you own more than 50% of the company. You can't buy/sell to a member of your family including spouse, ancestor, lineal descendant and any spouse of a lineal descendant. Meaning, not you parents, children, your son in law etc. But, you can buy/sell to a sibling. There can't be a sale/exchange/leasing of any property or providing a loan between a plan and a disqualified person. Lastly, you can't buy something you already own (SDI can't be used for funds to pay off your mortgage. There should be no perceived direct or indirect personal benefit to the account owner).

Basic rules

o Can't involve the account holder, his/her spouse a lineal ascendant/descendant of family nor the spouses of your children and you can't use SDI funds to pay off a personal mortgage

o Can't make personal use of property (must be for investment purposes only)

o Can't personally guarantee the loan for your SDI nor use the SDI as collateral for a personal loan

o Can't work for or take income from an SDI investment

o Can't have your spouse, nor your family members (your siblings are ok) own the property prior to its purchase by your plan

o Can't have your business lease or be located in or on any part of the property while it's in your plan. You may receive any property as a distribution from your plan as a retirement benefit

What transactions are prohibited?

The following are defined as prohibited transactions when they involve the account holder:

o Borrowing money from the SDI

o Selling property to the SDI

o Receiving unreasonable compensation for managing assets for the SDI

o Using the SDI as security for a loan

o Buying property for personal use with the SDI

o Collectibles/antiques

o Life insurance

o Stock of a sub-chapter "S" corporation

50% rule

If a disqualified person(s) owns 50% or more collectively of an entity, then the SDI can't engage in a transaction with the entity because the company is considered a disqualified person.

Using IRA as collateral

You can't use your SDI as collateral for a loan. If you will get a loan it must be an unsecured loan. If you default in paying the loan, the lender can't go get the money out of your IRA, nor can they go after personal assets.

Any type of prohibitions have penalties, if you violate them. SDI is no different. Here are the consequences if you do not comply:

o Loss of IRA status resulting from prohibited transaction

o Loss of tax exempt status

o Income tax on account value

o Penalties and interest

o Possible audit to determine extent of prohibited transactions

If you really want more information on the rules check out:

o IRS code 4975

o UDFI/UBTI: IRS code 598

o Department of Labor (DOL) 2004-8

Tax court cases

o Swanson 1997

o Rollins 2004

o Rousey v. Jacoway 2005

Ways to invest by using your SDI

o Property purchase all cash

o Property purchase using a loan (NOTE this has not always been the case where you can get a loan from a bank for your SDI. These past couple of years a few establishments are offering loans to SDI. I have those contacts, contact me and I will explore options for you)

o As a member of an LLC or "C" Corp.

o As a lender on a trust deed (mortgage note)

o As a partner in a joint venture

o As a Tenants in Common T.I.C. member (if any of the terms I use are unfamiliar to you, look them up online)

o Make a private loan to an entity or person (hard money loans)

To give you ideas of what investors have bought through Pensco:

o Largest US massage school

o Cypress tree farm in Costa Rica

o Fish farm in Salinas, CA

o Interests in movies, plays

o Condo in Lithuania

o House on a private lake in Colorado

o Thoroughbred race horse

o Nudist resort in Virgin Islands

o Over 35 U.S. banks

o Napa Valley B & B

o Biotech company

Pensco's top investor success story is going to amaze you on the potential your SDI can have. In March of 1999, four men opened up SDI accounts. They each invested individually and through their IRA's in a company they were starting. They brought in other unrelated investors. That company is bought out a couple of times. The company goes public and sells out in June 2002. Well how much did they make? CEO made $34 million (12,000% return). Chief scientist made $22 million. CFO make $17 million. Marketing VP makes $8 million (4,000 return) What is better than that? They all invested $2,000 through their IRA's except the CEO who invested $1,800. Pensco explained the features of the 1 year Roth IRA and they all chose to invest with a Roth IRA. If the CEO gets an average return of 12% until he is eligible to withdraw tax-free at 59.5 he will have $1 billion, $100 million tax free! Yeah that is right...show me the money!

Let's compare

Real Estate Investing - with SDI

o Tax deferred growth on income and cap gains

o No 1031 requirement!

o No annual tax reporting

Taxable investments non SDI

o Tax deferred cap gains (if 1031)

o Tax on net earnings

o Annual reporting required

How it works

You have an account with Pensco (you can roll over your current IRA account to them) you tell them what you want to invest in, they do all of the paper work, make out the check and now it is in your trust account. All money that is needed for expenses and all profits go into/taken out from the trust account. The title of the property in your IRA will be held with Pensco Trust as follows: "Pensco Trust Custodian, FBO (client name) IRA, (Acct #). All documents will be reviewed and initiated by the you (the IRA owner) and signed by Pensco Trust.

Introducing SDI on steroids in the neck...Solo 401(k)

A solo (k) is a combined salary deferral and profit sharing retirement plan for sole proprietors, small business owners with no employees (other than part timers working less than 1,000 hours per year or their spouses).

Roth contributions can increase tax free $15,000 to %20,500 per year or 30k to 41k per married couple (for 2007). Unlike a Roth IRA, there are no income limitations placed on the contributor. You could be a zillionaire and it would not matter! Currently a single person making over 110k can't contribute to their Roth married couple is 160k.

Who can benefit from Solo (401)k

o Real estate brokers

o Consultants

o Contractors

o Lawyers

o Electricians

o Any sole practitioner

o Even if you work full time for an employer and have a business on the side where you are a sole proprietor you can establish a solo K

The difference is...

o You can borrow up to 50k (or up to 50% of balance, if less) from your Solo 401 k

o You can invest in life insurance

o You can invest in "S" corporations

o You can avoid UDFI and capital gains UBIT (UDFI and UBIT will be discussed later) when using leverage to buy real estate

o A portion of your savings can grow tax free for life

o You can put away more money faster with larger contributions

o No income cap on contributing to the Roth component

o Above 50 year old employee has the option to put up to $20,500 per year away, to grow tax free

Why appealing

o Allows the sole proprietor funds to grow tax free

o While Roth IRAs allow similar contributions they are limited to $4,000 in 2007 ($5,000 if over 50), and to those earning annual gross income of less that $110,000 for that year

o You can increase tax free growth opportunities by also contributing to a Roth IRA ($4,000/$5,000) in addition to the Solo (k) (15,500/$25,000), if you are eligible (check with Pensco for details)

o A married couple in business together can put up to $51,000 ($25,500 each ) per year of after tax money into retirement accounts that will grow tax free for their lifetimes and those of their heirs (including $5,000 Roth IRA contributions) and another $59,000 ($29,500) each that will grow tax deferred. That is a total of $110,000 as a couple of which $51,000 will grow tax free (assumes each is over 50 and earns less than $100,000

o And there is no income limit on contributions

o May roll pre existing plans and IRAs into it

Types of purchases of SDI

All cash

Your SDI buys one property all cash. No debt, LLC, and partners. When you do this your SDI needs to have enough funds to cover purchase price, all closing costs, custodial fees and ongoing property expenses. If you run out, you can loan your personal money to your SDI (with interest and principal).

Multiple SDI - All cash T.I.C.

SDI may belong to anyone - even prohibited people. All SDI go on contract, and on title, as "tenants in common." Ownership percentage must be identified and all costs and proceeds prorated correctly according to these percentages.

Multiple Parties - IRAs & People all cash T.I.C.

Same as multiple IRAs, as long as there is no loan (as an all cash deal) it does not matter who the SDI belongs to, or who the people are. All names must be on contract and title for unique percentages.

All cash

Buy/sell, with/without, friends/family is by far the easiest and most common transaction. When this happens all income comes back to SDI, so having a1031 exchange is not required to defer taxes. The money in your trust account is also used to pay any expenses incurred. Real estate investment related expenses are paid out of the SDI.

Getting a loan to buy

In the past there were NO banks lending to SDI. Only until recently a few banks in the nation offer this service. The loan that is offered is a non-recourse loan. This is great news, because now investors could use leverage.

When you get a loan for your SDI you:

o Can't guarantee the loan personally.

o Can't co-invest with your IRA.

o Pay the tax on any income or capital gains derived from leverage.

o Increase the returns and growth of your SDI two to three times.

What is a "non recourse loan?"

o You are not personally liable for repayment of the loan. In the event of a default/foreclosure the lender can only recover the property and your equity.

o Typically requires 30-35% down payment. If there is low cash flow or the condition of the property is bad then they may require a larger down payment.

Non recourse loan process

o After setting up the SDI, it will typically close in 30 days.

o Cash out refinance: funds are distributed back into the SDI.

THERE IS NO PRE PAYMENT FOR A NON-RECOURSE LOAN!

Property Eligibility

o Single family residential

o Condo's (100% complete, 33% or more sold, and HOA turned over by developer)

o Duplexes

o 4-plexes

o Multi-family (5 or more)

o Commercial property: including retail, warehouses, and office buildings

Ineligible properties include:

o Residential with large acreage

o Raw land

o Farms

o Manufactured homes

o Hotels, condo-hotels

o Co-ops, timeshares

o Senior or assisted living facilities

o Non-franchise restaurants

o Entertainment properties

o Mini-storeage

Requirements for debt financing must be verified for purchase along with reserves (10-20% loan amount).

Documentation required for loan approval:

1. Completed loan application

2. Most recent asset statement verifying IRA assets for purchase and reserves.

3. Purchase sales contract

4. Acceptable real estate appraisal for the property to be financed. The appraisal must come from lender.

5. Copy of drivers license

6. Property insurance should read the IRA/LLC as the insured

Income requirements for homes

o The financed property must generate sufficient net operating income to exceed debt service payments by:10%single family (less then 10% or negative cash flow is acceptable with sufficient reserves on SFR). For 2-4 unit properties it is 10-15%

o IRA assets must be verified for purchase along with reserves

How the closing process works:

1. Title company prepares closing documents.

2. SDI owner initials for approval.

3. Originals sent to Pensco for execution by the tile company or broker.

4. Pensco signs, notarizes and returns package. They overnight and wire balance of funds for closing.

5. Title company forwards recorded grant deed to Pensco.

6. Through your trust, you now own the property.

Another way to invest using IRA

This is a true story from a Pensco client. One investor wanted to buy a property in San Francisco. They buyer didn't have all of the money for a down payment. So, he approached his friend and asked about him if he was interested in earning a certain percentage return on his IRA. He agreed. So, the buyer took his portion and combined it along with his friends SDI, to purchase the property. His friends SDI issued him a second on the property. This created a "win" situation for everyone. The buyer gets the property. His friend gets a great return on his IRA (that is secured by real estate) the sales agent wins because the deal closed. The owner of the property is happy, because they sold the property. The bank, is happy because they are making a return by giving a loan. All of this is possible because the SDI was used.

There was another person, who used his SDI to buy pre construction property. In Las Vegas, there was a developer who was forming a community. The investor approached the developer and solved a problem for them. Apparently there were some fall outs with buyers. The investor, said (paraphrasing) "I will buy any homes that fall out of escrow for a discount."

If you would like to read upon an investor who used their SDI, look up: Time June 14th 2005. Investor used $195,000 to invest in property on Marco Island FL. Sold resulted in a $500,000 profit going directly to IRA

Rental property purchases

Question:

I want to purchase a rental property for $100,000 can I use:

o A. $30,000 of my IRA funds

o B. $65,000 of my personal funds

o C. $5,000 loan from my brother to do this?

o D. All of the above

o Answer: D

In the begging of this E-book, I expressed that using SDI has been kept a secret. One of the reasons is because of misinformation from "professionals" is from CPA's. Some CPA's say not to use an IRA to invest in real estate because:

o You will lose tax benefits e.g. depreciation (not quite)

o Using SDI "destroys" tax deferred compound growth in IRA (wrong)

o You have to pay ordinary income tax versus capital gains tax at the end of the line (true just like any other IRA investment)

Some CPA view points do not take into consideration the following:

o They do not address need for diversification in the retirement portfolio to hedge against other assets

o Broadly implies that even if you know that you can get better results investing in real estate through your SDI you shouldn't do it

o It is IRRELEVANT if real estate out performs other IRA investments

o IGNORES the facts that 44% of net worth in US is in real estate

o Does not recognize that after tax yield is the primary goal of the investor

Unrelated Business Taxable Income (UBTI)

If your SDI produces income from activity not "substantially related" to the exempt status UBTI comes into play. The purpose of UBTI was to alleviate unfair competition by exempt organizations with taxable enterprises. Basically when you conduct business and it is not passive income, you come across UBTI. Further explanation; if your SDI is going to open up a restaurant, you are going to have ordinary income. The IRS feels that is fair that you pay tax on the money you make everyday. Because it is not fair for you to open up a restaurant and for someone else to open up a restaurant down the street, but you don't pay tax. If it is "ordinary income" UBTI applies. If it is passive income UBTI does not apply, such as rent, interest and capital gain.

Unrelated Debt Financed Income (UDFI)

Income generated by activity that had debt financing. Tax is applied to that portion of gain/income that is debt financed. Most "passive" investments income such as rents from a property are normally excluded from taxes, but such investment income is going to get taxed if derived from debt financed property (UDFI). Basically, if you buy a property for 5 million. You have your SDI, put up 2.5 million and you get a loan for the other 2.5 million. Well the gains you get from the borrowed 2.5 million from the bank will get taxed (UDFI). You will not get taxed on the portion that comes out of your SDI.

By: Cordell Davenport

"Your Apartment Investment Resource, Who Is Determined To Create Value!"

[http://www.cordelldavenport.com]

cordell@cordelldavenport.com

I am a resource to investors who own, or want to own apartments. I provide the essential financing as well as knowledge on how to rent and retain tenants of the property.

The company I represent is Smith Craine Finance (http://www.smithcraine.com). The benefit to you is that I have two "Aces in the hole." Theses two are the President and Vice President of the company. My VP is an inactive CPA, MBA and C.C.I.M. My president has a MBA in Finance and is on the board of Northern California C.C.I.M. and is the VP of the California Mortgage Association. So what does that mean to you? Well there is virtually no scenario that has not been encountered. A couple of years ago, we were awarded "Top five mortgage brokerages in Northern California" according to California Real Estate Magazine. The company's motto is "we just don't quote...WE CLOSE!"

Real Estate Investing - Part II

1.The Buyer's Mantra became "Ready, Fire, Aim".

Restated: Buy any attractive property, and buy it quickly. The only perceived mistake was not getting involved in the feeding frenzy for good looking real estate.

Frankly, there was a lot of truth involved in that strategy in a run-away market.

The old and wise adage of "look before you leap" turned into "Ready, Fire, Aim"

Offer quickly or lose the opportunity to buy.
Once you have it under contract, there will be plenty of time to decide if you really wanted the property.
If you didn't like what you had roped, you could cut it loose to another investor who was waiting in line to buy it. Or, hold for a very short period and flip it for a profit.

Real estate brokers became familiar with the buying game.

If three qualified buyers bid on an available property, there was the buyer would was able to get an accepted offer... he or she was referred to as "The Winner".
The person who came in second was referred to as "First Loser", and the third buyer as "Second Loser"
You only won as a "Winner". Loser" didn't count.

2.The Buyer's Mantra became "Debt is Your Friend... borrow as much as possible.

The Logic: If you could come in with say 10% down and the property appreciated at 20% per annum, then you had a 200% equity rate of return from appreciation only.

WHAT HAS CHANGED?

The following notable changes have happened that have changed the tried and true Real Estate Investment Model

1.A national and world-wide recession that has continued to deepen at an alarming rate.

2.The US Congress led by President Obama has tried all kinds of stimulus efforts to correct the economic downturn.

Most of the visible efforts involved throwing previously unimaginable amount of money at the banking industry... unfortunately with no visible results of correcting the primary element that will cure the recession... employment.
The National Debt has increased greatly in recent months.
Someone in the future will have to shoulder the burden of dealing with and reducing that debt.
Hope that you don't live long enough for your grandkids to understand exactly what we have allowed to happen. We have mortgaged their future.
Big Moral Question: Maybe we owe it to our heirs to accumulate enough wealth to pass to them so they have a running chance at dealing with the situation. Give them "enough to assist them, but not enough to ruin them" with the concept of "entitlement to wealth".

3.Unemployment rates continue to rise.

Consequence on the Real Estate Market:
Unemployed people soon lack the financial ability to pay rent or make their mortgage payment.
Increasing mortgage defaults mean increasing short sales or foreclosures for those who were not lucky enough to have sold prior to our current "short sale and foreclosure ridden market".

4.Property values are spiraling downward in the face of competition by low priced short sales and lender resales of properties that they foreclosed upon.

If you are looking to sell or refinance, then a real estate appraiser will be required by the lender who would make the new loan
As always, real estate appraisers are required to use the most recent sales that have occurred in the market
However, a number of the recent sales are short sales or resales of bank-owned property. One low sale influences future sales in the eyes of the lender. The lender is looking for Market Value today as well as the current value trend of the market.
This adverse impact of short sales and foreclosure sales will continue until the bank-owned properties have mostly all been sold.

5.There is a clear and obvious federal move from capitalism toward socialism.

The move toward much stronger federal regulation of all financial activities is one that causes great uncertainty concerning important financial relationships.
The federal government takeovers of General Motors and increasing control of the banking industry causes concerns that additional regulation and new governmental agencies could substantially alter the business models that have caused past stability and long term economic trends.
The recent success of a nationalized health care program is positive in concept. How can you argue that people should not have some minimum level of health insurance? That would seem un-American! However, the question remains: "At What Cost?" The cost of the plan stacked upon the financial failures of this recession will cause further stress on a system that is bulging at the seams to hold things together.
My friends in the insurance industry appear to be next for strong federal regulation. Anytime the government starts to dictate the "actuarial" statistics, something very strange is about to happen.
Who Will Pay The Bill? Guess what? You will be fine....SO LONG AS YOU DON'T MAKE "TOO MUCH" MONEY!

6.Interest rates have been maintained at very low levels. This is highly unusual in a recessive economic environment.

The recession of 1980 - 1984 was led by increasing interest rates. First mortgage price hit 21% during the heart of that recession.
Very low interest rates and the availability of mortgage funding so far has characterized the current recession. This is very unusual.
The recession of 1980-85 had first mortgage prime at 21%. You really needed to borrow money if you agreed to borrow it at that rate.
It was high interest rates that led to the recession of 1980-85.

7.A mantra of "tax the rich" is heard at the federal level and at the state of Oregon level. Oregon is known for being one of the "Top 10 Most Taxed State in the Nation".

This is a dangerous theme. New employment is required to lead us out of the recession. Oregon has lost much of its appeal to those companies who could help the quickest. Small business is the major source of jobs that will create local stability. However, a number of small businesses failed in 2008 and 2009.
Interesting Issue: People with money have the capacity to maneuver their money to avoid taxation. The big problem with "soak the rich" is that sooner or later you run out of "rich companies" and "rich people" to tax. Then what do we do?

WHAT IS THE CURRENT REAL ESTATE INVESTMENT ENVIRONMENT?

- or -

WHAT DO WE HAVE TO WORK WITH?

Put the above in a blender and put it on "whirl" for about 30 seconds. Then, pour it out and evaluate what we have to work with.

1.Cheap Mortgage Money: At this time, there is an availability of "cheap" mortgage money for:

Those who can afford to make a 30% to 40% down (depending upon the property type) and as little as 25% down on other asset types.
Contact me for some hints of some that I have discovered.

2.Increasing Debt Coverage Ratios: The lender's Debt Coverage Ratio ("DCR") has replaced the Loan to Value Ratio ("LVR") as the standard for gauging maximum loan amount for income producing properties.

Range of DCR: As the recession started to develop, the DCR was increased from 1.10 to 1.25 and 1.30.
Restated: The amount of a new loan has been reduced rather substantially as the recession continued to progress.

How the DCR Works:

Start with the Net Operating Income of the property and divide it by the Debt Coverage Ratio. This will define the maximum allowed annual principal and interest (P&I) payment.
Next, divide that by 12 to identify the maximum allowed monthly P&I payment.
Using a "present value" calculator, input that maximum monthly P&I payment in with the lender's allowed loan amortization term and the lender's required interest rate.
The result is the maximum amount of loan that the lender will permit on that property using that DCR.

3. Uncertainty of the tenant's ability to pay rent.

Here is where the real estate market has been shaken to the core.

Retail: A number of national credit tenants (Linen & Things, etc. etc,) have failed during the recession.
Past Observation: The retail triple net lease has been valued highly on the pecking order of desirable "institutional quality" investments. Cap rates were relatively low to reflect the low risk faced with national credit tenants.
The Problem: As some of the "big names" started to fold, the risk rating sky rockets. It would be logical that the cap rates would also increase to recognize that increased risk
Conclusion: The retail triple net credit tenant lease has started to pick up a bad name. Flip on the Red Stop Light.

Commercial Office: An interesting observation has been made about office tenants. They are starting to contract in amount of space needed. They are also attempting to renegotiate their leases for lower rents. Several of my commercial broker friends are starting to make a special practice in serving tenants as they negotiate against their landlord,

Commercial Medical: I have had several conversations with skilled doctors concerning the potential impact upon their career and their ability to generate income. They have expressed a deep concern about their continued ability to make good money.

Some might say that they earn too much to begin with. Maybe so, but if they have less income, then they can't pay as much rent for leased medical space. Medical building landlords... are you listening.
Lower rents would mean lower values for leased medical buildings

Residential Income: You have heard the adage... "Everyone needs a place to live". That is true, but watch the "trickle down effect" take an interesting gyration during a heavy recession.

Vacancy factors has started to increase.
However, in the Eugene-Springfield apartment market, the vacancy factor has increased from about 2% to about 4%. That is a rate that can very well be tolerated.
My friend Brian Miles, CCIM of SMI Commercial Real Estate in Salem has observed that vacancy factors for apartment units has doubled over the past six months in the greater Salem apartment market.
The commercial appraisers who appraise apartments are the best source of current vacancy rate and rent level information.
The problem is there are few that are generating published vacancy and rent reports any more. Rick Duncan MAI and owner of Duncan Brown Appraisers in Eugene stated that he grew tired of his competition using his reports in their appraisal reports.
Rick Duncan and several of the larger apartment complex property managers are the best source for vacancy factors in the Eugene-Springfield area. Rick is my "go to" guy when I need to get a quick and accurate temperature check of the apartment market in the Eugene-Springfield area.

My Caveat To You

Concerning "Real Estate Market Information"

Be very cautious when accepting information as "fact" concerning the "real estate market".

The "real estate market" consists of a number of localized sub-markets based upon:

1.Type of property

2.Type of tenant;

3.Location; and,

4.Quality of the information source.

Often I real articles in the local newspaper claiming that "real estate is a total train wreck". Then check the source. It is an article written in very generic terms about the "housing market" is some region far form the I-5 Corridor between The California border and the Canadian Border.

My Observation Concerning the I-5 Corridor (Oregon and Washington): to date

1.Property values for most types of tenant occupied real estate have held up rather nicely compared to other parts of the nation.

2. Mortgage funding is available to those qualified to purchase.

3. Occupancy levels are showing strains of a recession, but this is where the product types would be anticipated to have recessive problems

Bob Nelson, CCIM
The 1031 Guru
41 years of commercial - investment brokerage expertise
(541) 485-8100
bob@1031guru.com
http://www.1031guru.com

Real Estate and the New Series LLC

There is a national trend developing. Today, more LLCs are being formed in the USA than corporations.

Necessity, it is said, is the mother of invention. Given the simplicity, protection and flexibility of the Limited Liability Company ('LLC'), some states have begun to adopt the new 'Series' form of LLC. Starting 10 years ago with the concept of 'cell' captive insurance companies used offshore, the states of Delaware, Nevada, Oklahoma, Iowa, and now Illinois have embraced the new 'Series' LLC. It may be very well-suited for certain types of business and investment holdings -- such as multiple income-producing real estate, aircraft leasing, container vessels such as tankers and cargo ships, franchise business enterprises (i.e. multiple fast food stores), trucking and transportation fleets, and companies having operating divisions that need to enhance the liability shield to better protect one portion of the business activity from another.

THE CONCEPT MAKES SENSE.

Use of multiple LLCs for property owners is a conservative and safe way to go. However, instead of registering a traditional LLC, forming a new 'Series LLC' may be a smarter way to go for real estate investors. The concept is simple. It's based on the model of the Cell Captive Insurance Company used in other countries.

Even though one LLC 'mother ship' entity is formed, each separate cell within it (called a series) can be separately accounted for, and each can own assets and operate as a separate business enterprise. The idea behind the legislation is that the liability of one cell does not infect the others so long as guidelines are followed.

So now, instead of using land trusts or numerous traditional LLCs, a less expensive option may be to hold several rentals or fix-and-flip properties in one Series LLC -giving each cell within it a separate business designation, i.e. 'Valley Properties LLC Series I or Series II or Series III' or 'Valley Properties LLC Series A or Series B or Series C' for example. This simplifies formation and reduces legal and tax costs, since only one registration is made with the state and one single consolidated tax return is prepared. To keep the paperwork clean, each series will need to separately identify itself as distinct from the others in all business and tenant transactions -- including lease and rental agreements, deposits, bank accounts etc. in the name of that particular series as opposed to the 'mother ship' LLC or any of the other series. Of course, it will need to register as a 'foreign' company in any other state in which it holds properties - but only once.

WORKING THE NUMBERS.

Real Estate investors 'work the numbers' every day. Acquiring an investment property, doing fix-up, advertising and insuring the property, attracting stable tenants, maximizing the tax advantages and working the cash-flow management are all part of how you build a portfolio of income-producing real estate. To save costs, rather than paying for multiple 'traditional' LLCs, consolidating through a single 'Series' LLC can offer significant cost savings.

Let's consider one case example. If an investor has 20 properties and uses the new Series LLC, even if the franchise tax is applied the savings in multiple entity formation costs and tax preparation may be significant. The difference could be better spent on acquiring more income-producing rental properties and marketing for new paying customers, don't you think?

WHAT ELSE TO CONSIDER?

o The Illinois-type Land Trust (sometimes called the 'Real Estate Privacy Trust') is effective for protecting privacy and avoiding probate, but it is not a liability shield. It is only a 'privacy mask'. Some real estate investors in the past have used multiple real estate privacy trusts built around LLCs to save franchise tax fees but now that the Series LLC has arrived, that practice will fade away as did the 8-track tape and the Beta video system. With the Series LLC you can have privacy and protection in one entity.

o Using the Series LLC won't make sense if there are a large number of un-related parties - because the flow-through considerations might be quite a burden to your accountant. After all, simplicity is what's behind the new Series LLC. Real estate investors will want to take advantage of the Series LLC as a preferred form of property ownership, particularly where the LLC members are single owners, married couples, maybe a family trust or a family limited partnership.

o After your Series LLC is registered and the Members have signed the Operating Agreement, be sure to then sign separate 'Series Agreements' for each cell they choose to use. All future transactions should reflect that particular series' name so that you reinforce the 'separate' quality of each of the series units or 'cells'. As long as the revenue and expenses are separately accounted for (perhaps using Quicken® or QuickBooks®) and one single consolidated tax return is prepared, the fact that multiple properties are under the umbrella of one 'mother ship' (sub-designated as Series One, Series Two, etc.) it makes it easy to track revenues, costs, tenants, fees, property taxes and profits of each Series.

WHERE SHOULD I FORM MY SERIES LLC? About seven (7) states so far have adopted the Series LLC. However, four (4) other states have adopted legislation which strictly limits creditors of LLCs to a 'sole legal remedy' known as the 'charging order' (a passive lien on distributions). However, of all the 50 states only Nevada has done both. Once your new LLC has been formed, if you're going to use it in another state, simply register it as a 'foreign' (out-of-state) company with that secretary of state's office. Once it is registered to do business, we can show you the smart way to guard your liability risks and lawfully manage your tax costs so that you have more to put into your retirement accounts for the future.

Afterwards, in your business transactions, be sure to have each individual Series clearly distinguished from the others. Treat it as a separate business. Consider having each series use separate brokers, separate lenders, and maybe different banks just to make it clear they are separate. Rental agreements and all other paperwork will need to reflect the series designator so that it's clear the tenant is not doing business with the LLC 'mother ship' but rather with one particular Series as a distinct business enterprise.

LOOKING AT THE 'BIG PICTURE'.

Forming an LLC to hold investment property is a positive step in the right direction. However, it's one step. Keep the 'big picture' in mind: what are you trying to accomplish by investing in real estate in the first place? You're trying to build - and preserve - secure wealth that gives you cash flow and a future for your loved ones. Keep in mind that each property you acquire is part of a building process that is dynamic. You are using a system to find, acquire and finance each property. Use the tools that empower you and don't be overwhelmed by the small details that can sidetrack you if you let them. Use professionals for tax preparation, property acquisition and finance, and keeping adding to your portfolio with focus and discipline. Use professional advisors as a support system but remember they work for you so that you can enjoy what you do best -- acquiring more income producing real estate.

Michael Potter, Esq. is an attorney and national speaker whose presentations are an uplifting mix of humor, inspiration and practical strategies. His practice is focused on business and estate planning, accelerated retirement planning, identity theft, creating a tax-free inheritance, and core-values-based multiple-generation legacy planning. His e-mail address is WealthPreservation@cox.net. For more information see http://www.wealthadvisors.net

Where Does Your Real Estate Commission Fee Go - Why is The Commission so HIGH?

Many who have bought and sold properties through Realtors numerous times; even many real estate agents themselves, don't know where the commission money goes. After all, when a property sells for hundreds of thousands of dollars and the commission is tens of thousands of dollars, it seems like there is a terrific amount of money charged as commission -- and there is.

Even many attorneys, who have spent a decade or more in expensive colleges, fought to get through the Bar exam, and then spent years in their profession -- seem concerned that the commission fee is far larger than the attorney fee when all the fees are paid at settlement.

Let's start with the part that few real estate agents understand. It costs the real estate company they work for, between $19,000 and $45,000 per year for each agent to have a license, desk, and the use of company building, parking, real estate, taxes, insurance, utilities and professional support services -- whether they sell anything or not. Since the real estate brokerage commission is split between the company and the agent, an agent must make three to six thousand dollars every month in commissions for the company to break even on that agent with the company share of the fee. And, most importantly, the less productive agents in the office raise the cost for everyone. The other agents therefore, must each earn more to carry the share of the less productive. Many agencies will ONLY allow high quality, top producing agents to work at the company, so that the less successful agents don't pull down the average income of the company investment.

The total commission is split between the listing company and the listing agent ; and the selling company and the selling agent. Usually the commission is split four ways, sometimes it is more. Splits are arranged within each company and for each agent; sometimes there are numerous different percentages and split arrangements in each office.

The company part of the commission is spent on office rent or mortgage, taxes, property insurance, maintenance, signs, radio and TV advertising, bill boards, magazine and newspaper ads, cleaning, supplies, phones, paper, desks, utilities, legal fees and legal insurances, management and support staff as well as numerous memberships, dues, legal fees and expert professionals. Many companies also pay a fee to a franchise company or home office for the right to use the company name. Fees are also paid to regional and national home offices to defray national and regional advertising, management, staff, etc.

In the final analysis, an office that has 10 licensed agents must require those agents to bring in at least forty to seventy thousand dollars in commissions every month to keep the office bills paid!!! I don't know any real estate agents who actually understand or believe this, unless they have personally been responsible for office expenses for a year or more. Responsible, meaning writing the checks out of an account that costs THEM money. Even then it's hard to understand how it all adds up to such a huge figure, but it does. Offices that earn less than these amounts per agent are disappearing fast, few remain as it is.

Computer purchase, maintenance, training and software expenses are now one of the larger expenses. Many offices feel squashed financially, by the financial pressure of adding the purchase of computers, printers, digital cameras, and the maintenance, networking, repair, software and constant management of computers to the already high cost of doing business. In fact, there are even a few of the larger companies who specialize in purchasing other real estate companies who can't keep up with the expense and responsibility of this digital age. Any company or agent who is not keeping pace with digital realty and digital real estate, is not likely to be around much longer.

More and more people rely on the Internet to pre-shop for real estate. You know that. You are one of them and we welcome you to our site.

The purpose of our Web Site is to allow you to educate yourself and pre-shop for real estate before you call us. Let us know if you want us to have anything else on our site for you. We'll listen! As the Internet becomes the favored tool it is also the most important tool for buyers -- radio, print and sign ads become less workable. Smart sellers now want to see what a Realtor is doing on the web before they choose which Realtor to list their property for sale with.

Advertising and marketing expenses have grown tremendously over the years. For instance, when I first got into the business, thirty years ago, I started out helping to manage a real estate, building and developing company. At that time, over 60% of our phone calls came from signs on the property. Also at that time, bulk mail cost an average of thirty cents a piece to create, print, post and send and our response rate was often 3% or more!!! Now less than 10% of our calls come from signs on the property. Bulk mail averages over a dollar a piece and mail response is far less than half of one percent. In fact according to one national Realtor's marketing research team, real estate mailings now range in response from one in a thousand to one in three hundred. The best results costing the most to obtain because of expensive mailing pieces with full color, pictures, etc. One recent survey showed that average cost per resonse to a mailing was $2,000 - whether it was a lot of cheap postcards or fewer nicely printed color pieces.

Since 1971, I have studied and researched marketing and sales via schooling, reading and keeping good records of expenses and results. Thirty years ago the average cost of newspaper advertising to get a phone call was seven dollars. One in every ten calls coming to a top agent, resulted in an appointment. One in five appointments resulted (for a top agent) in a sale! Of course these were averages based on the best advertising, telephone and selling techniques that were available. Often the averages were not as good in other companies or for other agents. So the average cost of a sale using just print ads was about $350 thirty years ago. For my office of 50 agents in 1979, the average print, signage and bulk mail advertising cost had risen to $500 per call.

Now the average cost of one phone call from a print ad is from two thousand to five thousand dollars and that is growing by the month! So even if one could get one in ten calls to result in an appointment, and one in five appointments to result in a sale, the cost of advertising per contract would be phenomenal.

The nicer the property, the more attractively priced it is or the better it is located the more response the ad will get. Luckily for print ad salespeople and newspapers, few Realtors keep records of what advertising costs and results are. Singage is still a factor in obtaining calls and used to be the most cost effective. Therefore many Realtors will seek to get a listing in a hot area, no matter what the listed price, just to get a sign on the property! Can you blame them?

Print ads are done mostly to please the seller. After all the seller wants to see something tangible as proof that the Realtor is spending some money before that big commission is paid out at settlement. We certainly can't fault them for that either, can we? Interestingly enough, those sellers who price their property highest for what it is and who are located farthest from where the most buyers want such a property, are quite often the ones who most want to see their property advertised expensively!!! In the case of an overpriced property that is not well located -- thousands of dollars can be spent in advertising with not one phone call resulting! It's just part of our business and always has been. Ironically those sellers who have property priced the highest for it's location and want the most advertising, are often the ones who want to pay the least commission too.

You may find this all unbelievable! It is! I've been doing this business all my adult life, going to courses every year, working in the business in many parts of the country as a property specialist -- and I still can't believe the costs and conditions of this business. I am amazed every day by all this!

Each company pays their agents differently but the overall or gross commission as it is called is split in some fashion between the company and the agents. The expenses are split too. The most productive agents usually get a larger split of the commission, relative to the company. Some companies offer top agents the right to rent office space, usually at least twenty thousand dollars a year, and keep all the commission! And, top agents almost always spend a far larger percentage of what they earn for advertising, marketing, education and other business expenses that are designed to bring them future sales and income.

The best agents, the best ones for the seller to have, are those who do everything possible to let all the rest of the Realtors in the area know everything possible about the property they have for sale so that other Realtors can try to sell it too. When two Realtors from different offices are involved in the sale the commissions are split in half again. Typically each of the two companies involved would split the commission and then each of them would split with the agents involved. Often there are other commission splits payable as well to a referring agents; an agent who referred the listing or one who referred the buyer. To give you an idea of what all this means, when I averaged all the commissions I made over the last several years I averaged three quarters of one percent of the sales price for the properties I sold - BEFORE expenses! Now you can see why we all try to sell millions of dollars of property each year!

In most areas there is another expensive service that the companies and the agents use -- the Multiple Listing Service or MLS. This is where all the agents have agreed to put everything they have on a centralized and searchable computer so that all agents can have access to all properties. Once you choose your Realtor that person can access everything in the central computer files if they are a member of the MLS. Some of the smaller companies are not members because of the cost.

From the proceeds of commissions earned by the sales and listing agents, they then pay for their auto expenses, MLS fees, annual county, state and national Realtor dues, commercial licensing fees, business licenses, electronic lockbox keys, advertising, insurance, legal fees, computer related expenses, phone bills, etc. In the final analysis a Realtor who sells two million dollars in real estate a year is usually working diligently and effectively for his clients for only average earnings in area where she lives after all these expenses. And there are others; client gifts, professional dinners and luncheons, Chamber of Commerce dues, and numerous charities who consider that Realtors are the most likely to donate heavily to all the charities... since they have so much money.

Selling Real Estate is a life style and profession most of us would not trade for anything. And there are some of us who have made a nice living over the years at this wonderful job. It's all about helping others. If we do it well, we are paid well, and if we do it very well we are paid very well! Happily I have been working as a Realtor since 1972 and I LOVE it.

We know that for us we have the best job on earth and we do it our way. We use primarily the modern tools of the Net, Multiple Web sites, all the latest devices and techniques, MLS, several computers, as well as selected traditional mailings, some print ads and several professional assistants all to help our clients better and faster!

May we help YOU? We hope so! And, we hope to get paid when we do!

Copyright 2000-2005 by www.JodyHudson.com

Introduction to Real Estate Insurance for Realtors and Mortgage Brokers

Insurance requirements have become such an integral part of the real estate and loan transaction, they must be included in any comprehensive discussion of real estate finance. Every purchase transaction will require title insurance, and every mortgage will require homeowners insurance. In some situations, lenders may also require flood insurance and/or mortgage insurance. Even purchasers of condominiums and townhouses will have other insurance options to consider.

Title insurance was devised to eliminate most of the problems created by abstract attorneys and the abstract opinion. Title insurers examine all the recorded documents pertaining to a specific property to produce an insurance policy that covers the purchaser, the lender, or both, from any defects to the title. Title insurance policies are now fairly uniform, and the insurance companies have the financial resources to defend and compensate their insured.

Owner's Policy

The owner's policy insures a purchaser that the title to the property was transferred free of any defects, except those which are listed as exceptions. The settlement agent will obtain and record the documents required in the title commitment. In most real estate transactions, the seller will pay for the owner's policy. The buyer pays for the lender's policy and endorsements.

The owner's policy is valid as long as the ownership of the property remains the same. Transferring ownership of the property to another ownership entity, such as a family trust or a spouse by a quit claim deed may void the title policy. Whenever possible, the owner should use a special warranty deed instead of a quit claim deed to facilitate changes in ownership. This will keep the title insurance intact.

Lender's Policy

Often referred to as a loan policy, this is issued to mortgage lenders to protect their interest. Typically, lenders require standardized forms be used. The lender's policy will guarantee the validity of the loan documents, and will follow the assignment of the mortgage or deed of trust when the loan is transferred.

Homeowner's Insurance

Also referred to as Hazard Insurance, homeowner's insurance provides protection against damage to real estate improvements, damage to contents, and liability coverage. Every time a home is purchased with a mortgage, the lender requires the owner (borrower) to obtain property insurance as a condition of the loan closing. This insurance must be maintained until the home is paid off. This is a comprehensive policy that provides coverage for most available perils, including full replacement of improvements, liability, temporary living expenses, outbuildings, and contents. The contents coverage extends to losses away from the premises, such as in a car or storage unit. The insurance premiums are usually included as part of the mortgage payment (the 'I' in the PITI payment).

Flood Insurance

Prior to 1968, flood insurance was virtually unavailable through either the private sector, or the federal government. Until then, the Federal Government attempted to control coastal and river flooding through re-channeling of water, and using dams and levees to restrict the flow of water. The dams had the added benefit of producing hydroelectric power, and providing storage for irrigation. But the increasing cost of these projects, as well as the high cost of flood- related damage, influenced the government to explore offering flood insurance to reduce the disaster related payments. Typically, floods affect entire communities or towns, so the local leaders often looked to the federal government to provide disaster relief for the victims. The question debated by the Federal Government was whether they were better off using their limited funds to provide disaster assistance to flood victims, or to provide federally sponsored flood insurance coverage. Congress realized the government could not keep absorbing the escalating costs to taxpayers for flood disaster relief. This led Congress to establish the National Flood Insurance Program (NFIP) in 1968.

Lenders Mortgage Insurance

Mortgage Insurance is provided to enable lenders to close loans with small down payments. It is usually required when the down payment for a purchase is less than 20%. Mortgage insurance is strictly for the benefit of the lender. In the event of a default or foreclosure, the mortgage insurance company will pay the loss suffered by the lender. Typically, when properties are foreclosed on, the sale price at the auction is less than the current loan balance. This difference (along with the foreclosure costs) is the loss suffered by the Mortgage Insurance Company. Depending on the situation, the MI Company may attempt to recover this loss from the borrower. They can file for a deficiency judgment in court. Mortgage Insurance is provided by both government agencies (FHA) and private insurance companies.

Condominium insurance is a master policy that protects both the condominium association and each individual owner.

Credit Life Insurance

This is insurance that pays off the loan with the death of the borrower. This is basically Decreasing Term Life Insurance, where the benefit amount decreases at the same rate the principal balance of the loan decreases. The beneficiary is the lending institution. Very few mortgage lenders offer this type of insurance, and even less require it as a condition of the loan. However, deeds and deeds of trust are recorded and become public information. Many insurance companies 'fish' this information, and send notices to all listed borrowers. They will send out official looking documents trying to entice the owners to purchase insurance. These offers are not a good value and should be avoided.

Summary

Title insurance protects both the purchaser and the lender for hidden defects in the ownership of the real estate. There are many endorsements that provide the lender additional protection that are charged to the buyer. Even though the seller provides the buyer with clear title, it is the buyer's responsibility to pay the necessary premium to have the lender included in the coverage when purchasing a property.

Landlords and tenants have special insurance needs that should be addressed. Owners of condominiums and townhouses need to purchase contents insurance.

Mortgage lenders do not require credit life insurance. Companies that promote this coverage are predatory companies that should be avoided.

Van Education Center - Online Real Estate & Appraisal School

http://www.vaned.com

From initial licensing courses through a lifetime of continuing education, VanEd is here to support your successful career. All our property appraisal and real estate courses can be completed 100% online at your own pace, from the comfort of your home or office. If you need support while you study, our staff of instructors (all practicing, experienced industry professionals) are available by phone or email.

Let us help you start a new profession or become more successful in your existing career at http://www.vaned.com

The Real Estate Mom's Back to School Guide

As a long summer of lazy unstructured afternoons comes to an end, Real Estate Moms all across this nation celebrate the return of routine in their families. In order to prepare for that event, you You have inventoried the kids' closets, had them try on their shoes, collected the supplies needed by the new teacher and received the school calendars. How can you as a real estate agent and as a mom get off on the right foot this school year?

There is no doubt that you need to make a little extra time during those first few weeks to get everything heading in the right direction with the kids. Here is a quick back to school guide that will help you to keep the necessary focus on your business while helping your children have a successful start to the school year.

Schedule for Peace of Mind

One of the most important aspects of getting all of your goals accomplished as a real estate agent is planning and scheduling. This folds into the "mom" part of your life as well. It is important to know how to blend both the business and personal parts of your life. For example, your calendar, such as Top Producer or some other contact database software, is a key instrument for you to use in organizing your business. Not only should you use it to plan your client meetings, but you must also use it to schedule those important events for your child such as parent/teacher meetings, recitals and pick-ups from school.

When you keep your family and work calendars separate, you will inadvertently schedule a meeting with a client, over a child's school activity and vise versa. By color coordinating all of your Realtor appointments and mother appointments on the same calendar you can easily see where your focus is on a daily basis. By syncing your Top Producer with your Treo, you will have all of your appointments, work and personal, with you wherever you go.

Organizing For At Home Success

Next, use your Top Producer system to keep you organized. Take a few minutes to record the teacher's contact information. Most real estate agents would not leave home or the office without having all of their client's information in hand and it's vital that all necessary information for your child's school be in your electronic calendar as well. Include the school's phone number and any direct teachers' numbers, email addresses and details that you need.

Establishing Routine as A Real Estate Mom

One of the most crucial times for you to establish family routines is during those first weeks of school. Set up such things as the after school routine with homework, snacks, and chores. My daughter has her "daily five" that she needs to do everyday after school that includes homework, cleaning her room, cleaning her bathroom, unloading the dishwasher and feeding the dog. Once the foundation of this time of the day is set and becomes a habit for your child, you are more able to focus on your job as a real estate agent with minimal time following up on the "daily five." Getting them into a routine will also create lasting habits in your children

Your job and your clients can be demanding. That doesn't need to stop you from being a good parent and getting your home life in order. Take the time necessary to organize each of these aspects of your life, by being a real estate agent and being a mom. Spend some time planning, organizing and scheduling by doing the things listed here. A little extra effort now will help in creating a great school year for your child, yourself and your business.

Real Estate and Life Coach Cheri Alguire has partnered with hundreds of Real Estate Professionals to help them become more successful in business and in life. Coach Cheri offers Group Coaching for Moms, Working Mothers and Pregnant Women in Real Estate, on how to balance careers with family responsibility. Learn more at www.realestatemoms.com, and visit Coach Cheri's Real Estate Moms blog at www.realestatemoms.com/blog.