Is A Hybrid Car For You

You may have seen one zipping past you in the high occupancy lane, a lone driver at the wheel. It's a gasoline-electric hybrid car and driving in the HOV lane is just one of the benefits of ownership in many states. But what is a hybrid? How does it work? Is it the right car for you and your family?

A hybrid car has a both a gasoline engine and a battery. The battery is recharged by energy from the gasoline engine that would normally be lost during braking or decelerating. The car uses either the battery or the gasoline engine depending on several factors including how fast the car is traveling. Sometimes, both will work together to provide an extra boost of power without using too much extra fuel.

The result of this technology is cars that get significantly better gas mileage and produce less carbon dioxide emissions that traditional gasoline powered cars. For example, according to Honda, the 2006 Civic Hybrid gets 50 miles to the gallon on the highway, 14 miles to the gallon better than the 2003 regular Civic. When driven the national average of 12,000 miles, that represents a savings of 69 gallons of gas and 258 pounds of carbon dioxide per year.

In the early days of hybrid cars, there were few models to choose from. People desiring to purchase a hybrid car were stuck in tiny cars with little cargo space. Today, however, manufacturers produce hybrid cars and light trucks in nearly every category including family-sized sedans, sport utility vehicles and minivans. The smallest cars still get the best gas mileage, but larger hybrids consistently outperform their regular siblings in gas mileage and carbon dioxide emissions.

Unfortunately, hybrid cars cost more than regular models. In the case of the 2006 Honda Civic, the hybrid model costs almost $7,000 more than the regular model. Congress passed a law providing tax credits for hybrid car owners that took effect on January 1, 2006 that would save the buyer of a 2006 Civic Hybrid $2,100. It would take several years to break even on the purchase of a hybrid counting gasoline savings alone. However, many hybrid owners are as dedicated to the environmental benefits of driving a hybrid as they are to the money they save.

One of the fears when hybrid cars first became available was that maintenance and insurance costs would be prohibitive. Research has shown that regular maintenance costs for hybrid vehicles are no higher than for regular vehicles. Additionally, hybrid car owners are less likely to be involved in accidents and some insurance companies have begun offering discounts to hybrid car owners.

Kadence Buchanan writes articles on many topics including Automotive [http://iautomotiveworld.com/], Outdoors [http://livingtheoutdoorslife.com/], and Recreation.

Seven Steps in Selling Your Insurance Agency

Most agency owners have put their time, energy and heart in building their business. The business is a part of their life. The sale of one's business is usually a one-time event. It therefore makes sense to take the time and get it right the first time.

Just like building a business, there is no exact cookie cutter approach in selling the business. However, there are general guidelines to follow.

The following seven steps outline the overall approach one should take in selling their business.

Step One - Planning to Sell

You wake up one day and realize it would be great to spend more time you're your spouse, grandchildren or even playing golf. Perhaps, some client or underwriter gave you a hard time and you figure that was the straw that broke the camel's back. You lost a key market and don't have the energy or time to remarket your accounts.

It may seem funny, but situations like these are usually the trigger point for many owners to actually do something about selling their business.

When deciding to sell the business, an owner needs to check inside to see what the real expectations are. Selling a business is not like selling stock in GM. The agency is part of the owner's life and it is not a simple commodity to trade.

Snap decisions to sell usually result in long drawn out negotiations or other complications. When an owner spends some time planning the sale of the business, many common problems are minimized or avoided.

The first step is to work on a plan to sell the business. Theoretically, this plan should be started the day one becomes an owner. More practically speaking, planning to sell the business should start at about five years out.

Planning should include a review and initial analysis of the areas covered in the next six steps in the process.

Step Two - Who To Sell To

The thought process on who to sell to is basically a decision tree. First, should the sale be internal (to someone in the agency) or external (to another agency or outside party).

If the sale is to be internal, who are the candidates? Will new talent need to be brought in to help with the sale?

If the sale is to be eternal, will it be to a local agency, large regional agency versus, a publicly traded national broker or even a bank. It is a seller's market - finding a buyer is not a problem. Finding the right buyer is what it is all about.

Regardless of who the buyer is, it is important to do a thorough compatibility analysis. The goal is to match up the expectations and philosophy of the buyer to the seller. This will lead to the next step.

Step Three - Hire Professionals

Should the owner of a business research, analyze and buy insurance without an agent or broker? Most of the readers of this article would say "no." Agents and brokers provide a value added service through their experience and training. Likewise, there are professionals that can greatly assist with the sale of a business.

The merger and acquisition consultant should be brought in early, to help out in the planning process. A good consultant will advise on when to sell, who to sell to and what to expect. Consulting firms, like Oak & Associates, that specialize in insurance agencies will work with sellers and buyers to determine the best fit so that any sale or acquisition is a win-win deal. The work of a qualified consultant should develop the framework for the deal, which will be refined by the CPA and the attorney.

The CPA is needed to review the terms of the deal to see the tax implications. In most cases, taxes are the main driver in the structure of the terms of a transaction. Attorneys should review the sale of any business. Often, the buyer is the party that drafts all the legal documents. The seller's attorney is the final advocate for the seller in making sure that all is fair.

Step Four - Agency Value

Many agency owners describe the value of an agency in terms of a multiple of revenue or commission. While this rule of thumb is useful, its limitations need to be understood as well.

The astute buyer will determine value as a multiple of profit - after reasonable income and expenses are established. The multiple of earnings typically ranges between 4.5 and 7.5 based on the perceived strengths and weakness of the agency or book of business.

Agency owners should always be conscious of how business decisions impact the value of the business. Owners should always strive to run the agency in a way to maximize value. This concept should be a fundamental part of the business perpetuation planning process.

It is important to keep in mind that value, price and net proceeds from a sale can all be different. Think of value as a theoretical benchmark. Price is the number of dollars agreed to between the buyer and seller, as what it will take to transfer ownership. Net proceeds from the sale are the actual dollars the seller can put in his or her pocket - after taxes, and after other expenses.

Step Five - What to Sell

The question is: "should the owner sell the stock or the assets?" If the business is an "S" corporation, partnership, sole proprietorship or a LLC this step is usually straightforward - just sell the assets. For "C" corporations, that is another story.

A buyer will want to buy just the "assets" of the firm, which is just the good will of the book of business - sometimes called the expiration list. This is because it helps limit liability and the cost can be amortorized over 15 years. Buying stock does not allow either of these goals.

Sellers want to sell the stock in a "C" corporation to receive only capital gains treatment and avoid the double tax (corporate and personal). Thus the taxman has set up the conflict between the buyer and the seller. If the buyer is willing to buy the stock of a "C" corporation, the seller should be willing to negotiate on price since the tax treatment is more favorable to them.

There are creative ways to structure a deal to minimize tax impact for both the buyer and the seller. Assigning value to consulting agreements and non-compete agreements is commonplace. Both are ordinary income to the seller and can be written off by the buyer. Some deals assign up to 50% of the value to these agreements.

In some cases assigning value to personal goodwill can be used. Personal Goodwill is not owned by the business, but by the individual. Thus any gains from the sale of personal goodwill can be taxed under capital gains only - avoiding the corporate tax from the sale.

Also, the use of a deferred compensation plan could lower the value of the stock and thus lower the double tax. The buyer, however, is still obliged to pay the seller the deferred compensation, which is now an expense to the buyer that can be written off for tax purposes and just ordinary income to the seller.

Consult with a knowledgeable CPA to determine the best approach and the tax implications on the allocation.

If the business is a "C" corporation run, don't walk to convert to an "S" corporation. Keep in mind there is still a ten-year transition period per IRS regulation before the owner can receive full "S" corporation tax treatment.

Step Six - Determine the Terms

As a seller the goal is to get a fixed price with as much paid in cash as possible. As a buyer the goal is to put very little down and pay over several years a percentage of commissions as they renew. In other words, the buyer and the seller usually have opposite goals.

Most deals today tend to be asset deals based on retention of the business. Retention can be limited in scope to just the riskier parts of the book of business. Terms typically include a down payment of 10% to 30% with the balance paid out over three to seven years. The seller typically finances the sale of his or her own business. Keep in mind EVERYTHING is negotiable.

There are many other terms that need to be negotiated and the list will vary. Most important, is the seller staying on? Sellers that remain on for a period of time after the sale will need to have a clearly defined role defined and compensation plan for that role. There is no "typical" situation, but it is not uncommon to have the former owner help with the transition of the business for three to five years.

Step Seven - Close the Deal

Once the terms are agreed to a Letter of Intent should be drafted. This is a semi formal document written in plain English that outlines the key components of the deal. Typically the M&A consultant will draft it and then both parties will sign it.

The Letter of Intent is the blueprint that the CPA and attorney will use to finalize all the documents. A word of caution, the Letter of Intent is intended to save time and money. It is the starting point for the CPA and Attorney. Don't let the CPA or attorney start all over again and renegotiate the deal.

As mentioned earlier, the buyer typically prepares all the necessary documents. The main document is the Purchase Agreement, but there could also be employment agreements, producer agreements, consulting agreements, separate non-compete agreements, personal guarantees, etc. The seller's attorney needs to review these documents and ensure that they meet the goals of the Letter of Intent and are in the best interest of the seller.

A Final Thought

Know up front, there will be bumps in the road. Despite all the planning, there is a good chance some unforeseen situation will pop up. These glitches should be handled using a professional systematic approach. Remember, it is not personal, its just business.

When it is all in place, sit back and relax. Enjoy the fruit of your labor.

Bill Schoeffler is a business consultant and coach with 20 years of experience working with small business owners and individuals. Bill's unique background includes engineering, financial analysis, and inter-personal skills.

He can be reached at (707) 324-5531 or bill@chrysalisfinancial.net. You can find out more at http://www.chrysalisfinancial.net

You Want To Become A Work At Home Mom -- Here Are Some Things To Watch Out For!

You finally made the decision to become a work at home mom. Congradulations! The choice to work from home is becoming more and more popular for many moms. And for good reason, you can...

* be your own boss

* set your own schedule

* make money

* be home for your kids

Basically you have two choices, You can start your own home based business or you can telecommute for a company that hires remote workers.

As the popularity for finding work at home grows, unfortunately so do the scams offering big financial rewards. Work-at-home con artists have always preyed most upon moms who want to stay at home with their kids, people with low income and few job skills, and those who are looking to get rich quick.

Your first step when searching for a work at home opportunity should be for you to familiarize yourself with whats out there in the way of work at home "jobs" and "opportunities" on the Internet or you may find yourself being conned by work-at-home scam artists. You may also become unwittingly involved in helping them to promote their programs, and helping them to continue their deception.

The key to finding "Real" Work at Home jobs or opportunities is research. I know it's very tempting to fall prey to work-at-home opportunities that offer "easy money". I was a victim myself several years ago when I was a "newbie" to the Internet. Be sure to take the time to learn all that you can about a home employment offer, and about what you'll REALLY need to do to make money in it BEFORE you say yes or you could

Lose your money!

Waste valuable time!

Ruin your reputation!

Or even be a target of legal action!

Here are some common scams to watch out for, sometimes the ads may be worded a bit different- scam artists are very sneaky...

ASSEMBLY WORK AT-HOME: Typical Ad -- "Assembly work at home! Easy money assembling craft items. No experience necessary."

This scheme requires you to invest your money for instructions and materials and many hours of your time to produce items for a company that has promised to buy them. Once you have purchased the supplies and have done the work, the company often decides not to pay you because your work does not meet certain "standards." You are then left with merchandise that is difficult or impossible to sell.

CHAIN LETTER: Typical Ad -- "Make copies of this letter and send them to people whose names we will provide. All you have to do is send us ten dollars for our mailing list and labels. Look at the chart below and see how you will automatically receive thousands in cash return!!!"

The only people who benefit from chain letters are the mysterious few at the top of the chain who constantly change names, addresses, and post office boxes. They may try to impress you by describing themselves as successful professionals who know all about non-existent sections of alleged legal codes.

ENVELOPE STUFFING: Typical Ad -- "$350 Weekly Guaranteed! Stuffing Envelopes at Home!"

When answering such ads, you may not receive what you expected, but instead get instructions on how to place the same kind of ad the advertiser ran in the first place. There are several variations on this type of scheme, all of which require you to spend money on advertising and materials. According to the U.S. Postal Inspection Service, "In practically all businesses, envelope stuffing has become a highly mechanized operation using sophisticated mass mailing techniques and equipment which eliminates any profit potential for an individual doing this type of work-at-home. The Inspection Service knows of no work-at-home promotion that ever produces income as alleged."

PROCESSING MEDICAL INSURANCE CLAIMS: Typical Ad -- "You can earn from $800 to $1000 weekly processing insurance claims on your home computer for health care professionals such as doctors, dentists chiropractors, and podiatrists. Over 80% of providers need your services. Learn how in one day!"

When you respond to the ad you will be told that you must have this particular software program to perform medical billing work from your home. Prices can range from $50 to $500. The software program consists of not much more than doctor names and addresses and examples of letters that you may use to contact them. Few people who purchase this medical billing business opportunity or software program are never able to find clients, start a business and generate revenues-let alone earn a substantial income and recover their investment. Competition in the medical billing market is fierce and revolves around a number of large and well-established firms. Furthermore, those that are hired as Billers for "real employers" have years of experience.

HOME TYPIST JOBS: Typical Ad -- "Now hiring clerical home typists! Work directly for our company. No experience necessary. No selling. Positions available worldwide."

There are several companies on the internet that advertise the availability of "home employment" through home typist or ad typist "jobs" with their companies. The truth is, you will not be "hired" as an "employee" of the company as their advertising suggests. Instead, you will pay a fee to join and get instructions on how to advertise the same type of ad you answered.

E-MAIL/ORDER PROCESSORS - This may also be advertised as "Clerical Workers Needed" When you answer this ad you will be asked to submit a payment anywhere from $10 - $50 for application and/or processing fee and shipping and handling for the software they tell you is necessary to complete the required work. What you get is a letter with instuctions on how and where to place the same kind of ad you answered and a 3x5 floppy with useless work-at-home jobs, a mixture of computer-related work such as word processing or data entry and the same old envelope-stuffing and home crafts scams. You are instructed to copy the letter and floppy and send this to people who answer your ad.

Real legitimate work at home jobs do exist...you just have to know where to look and what to watch out for to avoid being scammed. So what can you do to protect yourself while still seeking out work-at-home opportunities?

Steer Clear of Starter Fees.

When searching for a telecommuting job remember...Legitimate EMPLOYERS will NOT ask you for money (not for software, not for an application or processing fee, nothing)--REMEMBER don't pay someone to work for them! Legitimate Employers Pay You!

Beware of Big Promises.

Be suspicious of any job description promising overnight success or using phrases like "effortless," "no experience required," "easy money," "hidden job market," "make money fast," or "earn hundreds or thousands a week." Believe me, there is no such thing as easy! Work is Work. Your success will depend on the amount of time and effort you put in to it. If it sounds too good to be true, chances are it's a scam.

Do a Background Check.

Before getting involved with any work-from-home opportunity or job resource, type in the company's name on various search engines to view anything that may have been written about it. Good or Bad

Then check out the company with watchdog agencies such as:

The Better Business Bureau

Scambusters

National Fraud Information Center

Web Assured (click on its "Watch List" to view complaints about various companies.)

So remember, to avoid losing any of your hard-earned money, be sure to take the time to learn all that you can about a home employment offer, and about what you'll REALLY need to do to make money in it BEFORE you say yes.

Kim Miller is a work at home mom and knows what it's like to scammed. She invites you to visit her website [http://www.wahmoms.net] - a site to help moms find work at home success!

Landlords, Be Diligent - Credit Reference Your Tenants!

It goes without saying that the economy is on its back foot and with National employers such as Woolworths, MFI, Land Rover and BT making redundancies across the country, Landlords need to be extra diligent before signing on the dotted line of the Tenancy Agreement.

So before you go ahead and sign up your tenant there are a couple of things you should be looking at to try and build a profile of your tenant and even though I would always recommend a credit check on your tenant, there are other ways to weigh up the likelihood of whether you have a "good tenant" or not.

These are the steps I would take with all my tenants:

1 ) Three months rent in advance - if you can. If you don't ask, you don't get.

2 ) Employers Reference - On too many occasions, I have seen Landlords and Letting Agents accept a letter from the Employer saying that they are employed and confirmation of their salary. This is OK, however, if you are to be thorough, you should also seek to understand the financial stability of the Employer. My first step would be to visit the Companies House website and for £2.00 you can order the last years set of financial accounts. I would suggest that you are diligent with this and do not assume that as it is a big Company, there won't be issues.

3 ) Previous Landlords Reference - Again, be extra diligent. It is not too difficult to falsely impersonate a landlord and write a glowing report on behalf of a tenant. I am not saying that this happens a lot however, if you are going to be extra diligent, try and get a contact telephone number for the Landlord and call them or request a copy of the old Tenancy Agreement.

4 ) Guarantor - there is no line that must be crossed before you can ask for a Guarantor - most letting agents will ask for a Guarantor agreement if the tenant is either a) unemployed b) they have CCJs or c) are on Local Housing Allowance or Benefits. You can ask for a Guarantor to sign an agreement to say that they will be responsible for the tenants financial and performance liability of the tenancy agreement. This will give you extra protection.

5 ) Rent Guarantee and Income Protection - For a small fee in comparison to your annual rent, it is absolutely worth it. To know that your rental income is guaranteed during the period of your tenancy agreement is an absolute must. Most of the companies that offer a Rent Protection scheme also throw in a few thousand pounds for Legal expenses too!

6 ) Credit Check - Ensure that your tenant(s) provide you with an up-to-date credit check. The tenant can visit Credit Expert by Experian to produce a free credit check, and if they are happy to show you the outcome of the check (as data protection will be in force) and as long as it is clear, you know that the Tenant does / does not have a poor credit history. You will be on the lookout for CC J's (County Court Judgements). These are unsatisfied bills that have gone to court. Be aware that on occasion, there can be a valid reason for a CCJ, such as moving address and forgetting to cancel a bill! If you do not seek a credit report from the tenant, you may wish to use a Tenant Referencing Agency, however, there will be a charge for this.

7 ) Request a Security Deposit - I am sure that you are aware by now that all deposits must be placed with a Government Backed Deposit Scheme otherwise you could be slapped with a fine 3 times as much! I would always ask for 6 - 8 weeks deposit, NEVER one month, as the temptation for the Tenant to use the deposit as the last months rent is too great.

8 ) Professional Property Management Software - Do it right! Even if you only have one property to manage, a lot of these software providers also include tenancy agreements, letters, reminders etc.

9) Get the right level of Buildings and Contents Insurance - I read somewhere that the majority of landlord and tenant insurance claims result from wine being spilt on carpets. Ensure that you choose a Landlord insurance provider that covers property that is occupied by tenants. And as an extra precaution, check to see what level of unoccupied cover they offer as most insurers only provide 30 days.

No one has a crystal ball and it is always going to be difficult to "judge a book by its cover" so please take all the necessary steps to ensure that the tenant you have chosen for your property is the right one, even though you just want the property let!

Jonathan Daines Jonathan@LettingaProperty.com is Co - Director of LettingaProperty.com, a property search portal and information guide dedicated to the letting Industry. Advertising Letting Agents and Private Landlords' Properties to Let to thousands of Tenants every day.

Health Care Blog For Reform - Is There Any Hope?

In today's times any health care blog concentrates on the big issue of health care reform. It is being discussed at a bipartisan conference today. President Obama says he knows the urgency of this issue and vows this conference is to be considered a last ditch effort to find lawmakers coming together to secure a compromise bill that will work for Americans. The subject of health care has been negotiated into the ground over the past year and no one seems to be capable of coming to an agreement on what is best for all of us. When politics becomes involved in issues such as the healthcare of our nation, it generally drowns out the voices of the general public and those in power do not seem to even want to listen to the silent majority.

In this health care blog we discuss the fact that Obama knows first hand how complex the healthcare struggles can be for many as he observed his own mother as she struggled for her rights as she battled terminal cancer years back. Many others have written him with their own horror stories of how the health care industry has failed them, time and time again. To quote the president, "What I'm hoping to accomplish today is for everyone to focus not just on where we differ, but focus on where we agree, because there is actually some significant agreement on a whole host of issues." In spite of the urgency of this topic, Republicans and Democrats simply seem to agree to disagree when it comes to certain issues, leaving no evidence of common grounds.

This health care blog notes that President Obama and Senator John McCain from Arizona had a heated discussion regarding the legislation involved in healthcare reform. McCain stated that Congress, under Democratic control is fashioning the health care reform legislation all the while violating Obama's openness pledges. The Senator says the legislation was produced behind the closed doors of a biased Congressional group using unsavory deal making techniques. McCain further asserts Americans actually want to return to the beginning of this struggle and totally scrap the legislation which is presently mired in Congress. As the matter is supposed to involve insurance and it's coverage for millions the discussion seems to be veering further and further away from its intended subject.

This health care blog is concerned with the fact that while all these high powered people battle it out, we seem to be left out. Left out of the decisions and not offered an opportunity to voice our feeling on this most important of subjects. While they continue to argue and debate, we see our medical insurance costs soar and there seems to be no end in sight without a good effective plan. Even the Democratic party cannot seem to come to any sort of agreement when it comes to health care reform.

This healthcare blog is concerned about the study that shows some forty five thousand people die each year because they do not have health insurance. Additionally, some seventy percent of the three quarters of a million people who filed bankruptcy last year did so due to medical bills, even though most had insurance. Perhaps we need a lot more health care blog coverage to prod these folks along.

The author is a full time writer.

Don't Buy The Wrong Investment

The times are good for investors. That was the conclusion from my last column regarding the latest mortgage industry problems and their affects on landlords and tenants.

The current credit crunch has stifled some potential home owners from purchasing their dream home, forcing many to stay in the rental market. This has been an encouragement to landlords who have suffered under stagnant rents and fewer prospective tenants over the last few years.

At this time, there are many opportunities for investors in the real estate market. According to the Federal Reserve Bank, foreclosures are at an all time high in the national market. In addition, the housing sales slowdown affords investors a chance to pick up properties on short sales or directly from a distressed buyer.

Because of these opportunities, it's important for investors to better understand their place in the real estate market. I've had the opportunity to teach several courses on investment real estate. From my experience in this arena, I place most investors in one of two categories: net worth investors or cash flow investors

Many investors initially gravitate to single family homes. This is an easy category to understand for most people and they are comfortable with the lingo of single family homes. Whether they know it or not, this category of investor is generally a net worth investor. A net worth investor is one that makes money over a long slow period of time, and very little on a month to month basis. They build "net worth" slowly while the property appreciates in value.

The single family home simply isn't going to produce a large return except in the long run. The reasons are many, but the simplest is that the average home will produce about .75 percent per month in rent of its value. This is my personal rule of thumb and it fluctuates according to market cycles. Based on this rule of thumb, a home valued at $150,000 will produce a monthly rent generally around $1,125. Given a down payment of 10 percent, a 7 percent, 30-year mortgage, property taxes, and insurance costs, that home will produce anywhere from $6 to $73 per month, depending upon the county location, in net cash flow before repairs and vacancies.

So, the net worth investor is banking on the fact that single family homes in the past have appreciated in value and hopes to someday capitalize on that trend.

The second type of investor, the cash flow investor, looks to real estate investments that produce more cash flow on a monthly basis than in the long run. In other words, they may give up future appreciation for money in their pocket today. Multiple family units, such as duplexes, quads, or apartments, generally fit this bill. The main reason is that the unit can be bought cheaper than a single family home due to lower land and development costs per unit. Because of this, that lease rate ratio comes closer to 1 percent.

So, a multi family unit that is purchased for $75,000 might produce a rent of $750 per month. Using the same parameters from the single family home example, this unit will produce cash flow of $170 to $205 per month, depending upon the county location. As you can see, this small deviation in the lease rate ratio produces a sizeable difference in monthly cash flow; thus, making the multifamily investor primarily a cash flow investor.

Another factor for the investor to consider is the exit strategy, which is how to dispose of the investment when they are ready.

The net worth investor who is buying single family homes will be selling his investment to a retail buyer. A retail buyer is someone looking to purchase the home to live in. This buyer market is generally fairly stable since there are a lot of them in the market place. Thus, it provides a little more liquidity for the net worth investor since the property is easier to sell. Additionally, this buyer may buy on emotion and doesn't care how well the house produced as a rental or what the investor paid for it. So, the investor, in a good market, can ask top dollar for the property no matter how well he managed it as a rental.

On the other hand, the cash flow investor is almost always selling to another investor. This may be an investor who bases his entire decision on the income of the property. The cash flow investor won't have the luxury of stretching the fair market value. The purchaser will only pay what the rents dictate.

So, while there are many opportunities in this new market cycle, potential investors must decide which route they want to take. Do they go with the direction of slow and steady and hope for a big pay day, or do they look to cash in the pocket today with less excitement in the end? These are questions that every investor, whether big or small, eventually must answer for themselves.

http://www.capitallistings.com

Brian Patton, CCIM, owner of Capital Realty Advisors, LLC, of Atlanta, Georgia, is an author, columnist, broker, and speaker on commercial real estate issues.

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.