Real Estate Notes and News

Are Wrap Notes and Recourse Loans a Sign of Over-leveraging?

Cari Haus (Log Cabin Rustics) — Wed, 26 Nov 2008 06:23:11 -0800

I read an article that listed the presence of wrap notes and recourse loans as "red flags" that a property purchaser could be over-leveraged when purchasing a property. Although I know some professionals are into wrap notes as a creative form of financing, the assumption would be that if a buyer needs to resort to a wrap note as the only method to obtain a loan, or the only loan they can get is a recourse loan, they must be over-leveraged.

Would my fellow professionals on Active Rain agree that wrap notes and/or recourse loans are a sign of over-leveraging? If so, in what way? Are there other signs of over-leveraging that you also watch out for?

Is "family size" a legal criteria in the tenant selection process?

Cari Haus (Log Cabin Rustics) — Wed, 26 Nov 2008 05:02:20 -0800

I understand the Fair Housing regulation and that there are a number of criteria that cannot be used in the tenant selection process. However, I am wondering if family size is a legal criteria nationwide, or if that varies from state to state. Your input and/or discussion would be appreciated!

Why is the multi-family housing market more predictable than office real estate? Please help!

Cari Haus (Log Cabin Rustics) — Wed, 26 Nov 2008 04:32:40 -0800

Hello all. I'm wrapping up a real estate article in which I wrote that "the multifamily sector is considered to be more predictable than investing in office space, retail, or land."

My editor wants to know "why is multifamily more predictable than office?"

My thought was that housing is a stronger need, that while people may double up on apartments or live with their parents in a down economy, they still need a place to live. In the office market, businesses may be closing because of the down economy. Also more businesses may be turning to virtual offices or home-based offices as a cost-cutting measure.

Just wondering if some real estate pros out there would lend their input. Do you agree that multifamily is more stable than office? Why or why not?

Thanks in advance for your comments!

Check out this great chalet in Michigan!

Cari Haus (Log Cabin Rustics) — Fri, 31 Oct 2008 15:41:10 -0700

Haven't posted on ActiveRain for a bit, but couldn't resist mentioning that I have a great house for sale in the great state of Michigan. It is very secluded, 1200 feet off the road, and in the woods. It is about an hour from Grand Rapids, and hour from Lansing, and an hour from Saginaw. It is 1/2 hour from Mt. Pleasant.

It has 2 1/2 acres, 3000+ square feet, 5-6 bedrooms, a loft, garden tub, 2-car garage, etc. And there is a pond and stream nearby, perfect for the wildlife lover or hunter. It is also near the Heartland Trail, which will be paved at some point for biking, cross country skiing, etc. Just a short walk through the woods and you will be on the trail.

We are selling the house because we moved to Oklahoma. We built it in 2000, it is of ICF (insulated concrete foam) construction with plenty of skylights and windows. Here's the link to see it if you like!

SEO Secret Sauce from Active Rain

Cari Haus (Log Cabin Rustics) — Tue, 07 Oct 2008 06:44:57 -0700

Having been a student of SEO (search engine optimization) for years, I can't help but say something about the SEO possibilities associated with Active Rain.

As anyone involved with e-commerce knows, search engine positioning (especially on Google) translates directly into traffic, which in turn (with a well-built website and conversion rate strategy) translates directly into more sales. My log furniture website has been in the top 3 of Google for the search term "log beds" for years, and there are a number of other terms we are always jockeying for position on (log bunk beds would be another).

We've tried a lot of things in our quest for search engine position. One SEO advisor told me that if I blogged every day for 30 or 60 days, rankings would surely go up. I hired my college student son to try that for me this summer, but though I thought he did a good job, rankings did not improve. (He did push the envelope just a bit when he wrote about hunting moose, since he is a vegan! I had told him he could write about topics of interest to hunters, among other market segments, since we do sell a lot of furniture for hunting cabins).

In any case, after our less than productive blogging foray this last summer, I was less than excited about blogging on Active Rain. At the same time, I do a lot of research on real estate topics for article assignments, needed some place to organize my thoughts, and thought an Active Rain blog would be a good place accomplish that feat while making some new friends as well.

I did not expect any of my blog posts to achieve any significant ranking on Google, but decided to keep an eye on it just the same. Now I admit these are long tail results, but the SEO potential thus far seems very impressive.

For example, my recent post "Do Log Homes Hold Their Value" is in the top ten of Google for the search term of "log cabin appraisals." I didn't have to build a blog and blog daily to accomplish that little feat. I simply had to blog it, with the appropriate tags, on Active Rain. Given the hefty help section featured on Active Rain and SEO savvy, I suspect that there are SEO tools on Active Rain that I have yet to tap into. Another one of my posts is also right up there for "eminent domain real estate developers." Some of the posts seem to rank in the day or two after the post and slide down thereafter, but if I were a consulting expert in any of these areas, I'd be posting valuable information on that theme on at least a weekly basis.

I did just notice, while reviewing my previous posts, that Active Rain seems to have a limit on post title length, and that only the first so many letters of each title are included in the post URL. This prompted me to put the SEO Secret Sauce at the start of my title. If anyone else has some tips to share, I'm listening!

Do Log Homes Hold Their Value?

Cari Haus (Log Cabin Rustics) — Mon, 06 Oct 2008 04:51:21 -0700

"Will this log home appreciate in or even hold its value?" These are some of the questions potential log home buyers frequently ask their real estate agents.

"Will it be easy to sell this log cabin in a reasonable amount of time," is another frequently asked question. The answer to all of these questions is "yes." If they are well-built, cared for and in a desirable location, log homes do hold their value.

Many people who are attracted to the log home concept don't want to build it themselves, and, as a general rule, these log home buyers are more educated than conventional home buyers. They are also better credit risks, and frequently take up to 2 years to research log homes before making a purchase (as opposed to 6-7 months for conventional buyers).

When it comes to financing, log home buyers still have to jump through more hurdles than purchasers of conventional homes. As log homes have become more common and their perceived value has improved, the financing "hoops" specific to log cabins have also been eased. In the 1980's, the appraisal of a log home had to be based on the sales price of three comparables sold in the same market within the preceding six months. The frequent dearth of local comparables made it difficult, if not impossible, for some log home buyers to obtain financing for their purchase. Those restrictions were eased in November of 1992, when Fannie Mae began allowing log homes to be classed as "unique" or "custom" houses. Comparables for custom homes could be based on three other unique, special, or rustic houses in either that market, or a competitive one-as long as the appraisal was based on sound judgment and supported by current market data.

The net result of that has been continued growth in the log home and related industries (such as log furniture) during the years since the change. Despite the continued technological advancements and rat race of everyday living, many Americans are still attracted to the warmth, beauty, and simplicity of a woodsy log cabin. The trend continues to bode well for the log home industry, not to mention market values for homes already in existence and under construction.

The Green Building “Payoff”

Cari Haus (Log Cabin Rustics) — Sun, 05 Oct 2008 13:24:55 -0700

An increasing number of investors are realizing that "green buildings" are good for more than the environment: "going green" is financially rewarding as well. Given the volatile nature of energy costs and the economy, long-term energy savings are looking more and more attractive as a way of boosting the bottom line. While environmentally-friendly buildings generally cost more to construct, their lifetime cost of operation is also substantially less.

On the average, green buildings are 28% more energy efficient than their less eco-friendly counterparts. This savings is achieved partly through reduced electricity purchases and partly from reduced peak energy demand. Some green buildings also generate a portion of their power, further enhancing the potential savings.

Recent research has also highlighted the positive impact of green buildings on overall productivity and health. Children in green schools have been shown to have 20% better test scores, patients at hospitals using green technologies are discharged 2 ½ days earlier, and even shoppers at retail stores tend to linger longer-and spend more money-in green shopping malls. With these stats in hand, it's no wonder that green buildings command higher selling prices, and rents, than less environmentally friendly alternatives.

A growing number of municipalities and other government entities are offering incentives to both commercial and residential property owners who "go green." Green roofing, which is already popular in Europe, is quite literally "gaining ground" in the United States. The ultimate in green roofing, where soil and plants actually sit atop a building, greatly reduces stormwater run-off in city environments. Green roofs can also provide amenities for tenants, attract birds and pollinators, reduce pollution, and add a touch of beauty to an otherwise asphalt scenery.

Green mortgages, where preferred interest rates are provided to buyers who borrow extra to upgrade the energy efficiency of their home or commercial building, are also gaining in popularity. If you haven't thought much lately about "going green", now might be a good time to check into these options, as the return on investment for eco-friendly buildings and homes is more attractive than ever before.

"Free Rein" on Eminent Domain?

Cari Haus (Log Cabin Rustics) — Sun, 05 Oct 2008 07:23:12 -0700

The U. S. doctrine of eminent domain, which is known as "compulsory purchase" or "expropriation" in some other countries, allows the government to forcibly purchase property for the "public good". "Just compensation" is required, but the owner's consent is not. The most common uses of property taken by eminent domain are for public utilities, highways, and railroads.

Over the years, the use of eminent domain has frequently pitted the rights of individual property owners against economic development. Part of the problem leading to litigation is the vagueness of the law, which leaves the definitions of "public good" and "just compensation" open to bitter dispute. The result has been heartbreak for more than a few Americans, who learned the hard way that little guys don't often win when taking on City Hall.

The potential for abuse appears to be growing. Owners of waterfront or other coveted property can, under the "right" circumstances, be forced to sell their property for reasons more related to bribery than to the public good. While economic development is important, there are frequently other options involving willing sellers-albeit higher prices.

While some point to the bright economic prospects resulting from the municipal exercise of eminent domain to spur development, drawbacks exist as well. Market values are likely to decline, as more developers learn that it's easier (and less expensive) to lure an official than to negotiate and pay market value for a property. Corruption, litigation, and confusion with regard to eminent domain will all continue to rise.

In the case of a hospital expansion, or some other much-needed downtown project that really can't be somewhere else, there may be instances where the right of eminent domain really is for the greater good. Trouble arises, however, when eminent domain is utilized to purchase a property that:

* isn't for sale

* at below market prices

* for a project that really could be somewhere else.

Municipalities and other government leaders really need to give more thought to the issue of eminent domain, before they give it "free rein."

Finding Your Real Estate Niche

Cari Haus (Log Cabin Rustics) — Fri, 03 Oct 2008 07:12:17 -0700

Which would you rather be-an expert, or "Jack of all trades, master of none"? With the complexity of today's market and the temptation to diverge from original business plans, this question is worth asking.

Finding a niche and mastering it to the point where you become an authority is, hands down, the most lucrative track for real estate investors and agents. As opportunities arise, you may find yourself branching into sub-niches. The take-away message from today's business climate is clear, however: don't spread yourself too thin.

Pick your Passion

While you don't have to "love" every investment opportunity that comes your way, passion is always a positive thing for business. Investors who find a niche they are truly interested in will be so much further ahead. It will be so much easier to develop a reputation and sustain long-term interest, if you have a strong interest in what you are doing.

Your passion for a project may have to develop, sometimes. That's how it's been with my e-commerce log furniture store. Although my entire house is furnished with log furniture, I'm not necessarily in love with that type of décor. I have come to greatly appreciate my Amish and other suppliers, however. And I have met a lot of wonderful customers, from hunters to executives who were furnishing their second homes to kids just out of college who saved for a year to buy their log bed. By the time someone buys four or five thousand dollars worth of furniture and gets it shipped across the country, you kind of get to know them. They become friends, which strengthens my passion for customer service.

So a niche that didn't seem interesting to me at first somehow became intriguing. The same can be true in the real estate market. Opportunities that come your way can often turn into niches. You can't have too many niches, and you may have room for only one, so you have to be choosy.

Do you love real estate investing but hate property management? Are you investing for cash flow, equity growth, or some combination of the two? Are you more interested in holding or flipping properties? Do you have a sense of mission for low income housing, or feel "called" to rebuild GO Zone or hurricane-damaged areas? Or are you a higher flyer, attracted to trophy buildings?

Ttere are plenty of niches for real estate agents as well. What is the market you find yourself serving--seniors, singles, Baby Boomers, or "Echo Boomers" (children of Baby Boomers)? Do you find yourself selling an increasing number of resort or vacation homes? Do you sell to a lot of Hispanics? Have you developed a knack for helping first-time buyers, or are you more suited to showing condos or luxury homes?

The answers to these and other important investing questions can help you determine your "niche." While it will take time to sit down and think through your options, the focus that finding your niche can add to your business efforts will be well worth the time you expend.

Succession Planning for Real Estate Investors

Cari Haus (Log Cabin Rustics) — Thu, 02 Oct 2008 21:40:18 -0700

Although most people prefer not to consider their eventual demise, facing the "inevitable"-even if it does appear to be quite a ways off-is certainly better than ignoring the possibility. Horror stories abound of real estate investors (and others) who failed to address succession planning, only to come to a point where it was too late.

They say no partnership should be formed without a viable exit strategy. The same type of care should be taken with regard to succession planning. Property ownership should be structured towards an eye towards the future, right at the very beginning.

If you have decided that your offspring will someday be the beneficiary of your carefully cultivated real estate portfolio, you have taken the all-important, and sometimes hardest, first step towards succession planning.

The succession waters can quickly become muddy, however, if thought isn't given to the various factors involved. What if you have multiple children? What if one of them is a fearless and savvy real estate investor, schooled by none other than yourself, while the rest are not only hopeless with regard to investment decisions, but totally uninterested in anything but the profits?

What if you only have one child, who, while a truly wonderful person, has absolutely no aptitude or interest in managing the portfolio you've spent years-and a small fortune-to develop?

Depending on the complexity of your real estate portfolio, it may take years of mentoring to prepare a successor to step into your shoes. Meeting the issue head-on doesn't mean you have to step off the stage any time soon. It just means you are planning the preservation of your portfolio with the same smart level of thinking you used to select your investment.

A primary goal, of course, is to transfer your estate in such a manner that your heir(s) escape gift and estate taxes. This is no small feat in today's turbulent tax environment, with the unpredictable tax law tweaking that can alter the estate planning landscape on a congressman's whim.

A failure to minimize transfer taxes can result to an excessive reduction in value, forced liquidation of assets, and even a business failure.

One of the best strategies for beginning a tax-free transfer process is to take advantage of the annual gift tax exclusion by gifting a partial interest (up to the maximum allowable deduction) to your offspring each year. If the amount gifted is a minority interest in the property, the value of the gift may even be discounted. The rationale here is that, since the recipient is not receiving a large enough portion of the property to gain control, the value of the gift is discounted.

If you want to continue a steady stream of income during your retirement years, consider selling real estate to your offspring through an installment sale. Through this strategy, any taxable gain on the sale can be spread over a number of years. The installment sale method of property transfer also avoids eligibility for the gift tax.

Taking the time to discuss succession planning issues with your family can be somewhat thorny. It's also necessary, however, in order to ensure that the bulk of your hard-earned real estate portfolio lands in the hands of those you would choose, instead of the taxman's coffers.

The Buzz about Bifurcation

Cari Haus (Log Cabin Rustics) — Thu, 02 Oct 2008 04:28:16 -0700

If the word "bifurcation" doesn't roll off the tip of your tongue as easily as some others, don't fret. Bifurcation, which my dictionary says means to "separate into two parts or branches" or to "fork," has a lot of linguistic uses in the real estate and other industries.

Bifurcation in the real estate industry is sometimes used to describe a split in market performance. For example, a situation where sales in the luxury home market are booming while low-end residential properties are stagnant would be described as market bifurcation.

In other real estate circles, bifurcation is just a $10 word for cost segregation. If you own rental properties, there are actually 4 ways you can segregate depreciation on that property: land, personal property, land improvements, and buildings. While land doesn't depreciate, personal property may be depreciated over 5 years. Land improvements are generally depreciated over 15 years, while the buildings themselves are most likely in the longer-lifespan depreciation category.

By improperly classifying personal property and/or land improvements into the building category, many landlords miss out on a substantial tax savings. The end result, of course, is the costly and somewhat painful bifurcation of cash, as it separates from the property owner's pocket and "branches" into IRS and other tax coffers.