It’s not just you that has to qualify for a mortgage. Your home does too. Check out the video to learn more about why your new home faces a rigorous qualification just as you do.
Is the Multi-Family Market Heading Towards a Bubble?
When it comes to the hottest type of real estate multifamily investment, investors started to question 
if we are in the bubble.
It is not possible to predict the future with 100% certainty, but the facts support the statement that the multifamily segment of real estate market is outperforming all other types of investments.
We’ve got more than enough demand. Between the Millenniums and the Baby Boomers there is definite increased interest in renting apartments.
Have we thought that too many apartments are being built in Broward County? Since 2006 we did not see any new multifamily construction, therefore the answer to such a question is a strong resounding NO.
We’ve got a long way to catch up with the market demand.
Many of my investors are expressing concern related to a valuation of this type of asset defined by a CAP Rate. In actuality CAP Rate will continue to go down in the coming years. There are multiple reasons for this prediction which we will not be touching on in this publication due to the complexity of the issues.
There is no shortage of interest and/or capital available for this sector of real estate.
The main challenge is to find the willing Sellers in South Florida. It is becoming harder and harder to come by multifamily deals.
What are the main driving factors for such a condition?
1. Foreign investors are looking to bring a capital into the most economically stable country in the world. They can afford to pay a price that would yield an extremely low return because they get the benefit of currency appreciation. 3% CAP Rate for them is not actually a 3% return.
2. Florida is the State with no Income Taxes.
3. South Florida has shortage of land available for development which increases the value of existing properties.
4. And one more Very Important Factor, we have wonderful weather most of the year.
The challenge is to find Sellers that would sell multifamily property at the market value. When someone considers selling, he or she is asking what to do with the money and where it can be reinvested. This information is not to discourage anyone from looking for reasonable (hopefully) Sellers, but provide a brief overview of the particular sector of the market.
As a buyer in South Florida, it is probably a good idea to invest even if the initial return seems too low. Almost all lenders love the product and provide financing with a low interest rate. If buyers exercise their leverage they should be focusing on the Internal Rate of Return versus CAP Rate. Multifamily is considered to be an exceptional investment in today’s market.
I am always available to answer your questions.
The By Owner and the Pizza Man
I wish I could take credit for this great post, but it was from a colleague of mine. It’s too good not to share, however.
“A past client of mine – who owns a pizza shop – calls me and proceeds to tell me how he is going to buy a property (FSBO) so they can “cut out the brokers fees.” He goes on to tell me how proud he is that he read “THE BOOK” (what book I don’t know) and is following it to investor success.
In the next breath he asks me to run comps, closing costs, give him contacts for mtg reps and title cos and give him advice on what the next steps are to completing the transaction as well as negotiation tips.
I took a deeeeep breath…told him to hold on I was on my way to his shop and that I would be right there to have this convo in person.
I arrived but before I would let him speak I handed him two frozen pizzas I bought at the supermarket – I asked him to place them in his oven so they could cook, cut them and serve them to me at his table before we could talk business. He was appalled – how dare I ask him to do such a thing, don’t I know that HE makes pizzas and that is how he pays his bills? I just looked at him and smiled … I could see the light bulb turn on.”
Mattress Money
Mattress Money and other funds used to purchase a home
With vigilant focus on the source of funds for closing mortgage loans, its important to know what’s acceptable. Here’s what you need to know and what you will need to provide:
Mattress Money
Or any “cash on hand” is not acceptable. All funds must be “seasoned,” which means your money needs to be in an institutional bank account (bank, credit union, brokerage, etc.) You will need to provide all pages of up to three months of bank statements for proof that these funds are yours.
Gift Funds
Are okay with a signed “gift letter” (a form your lender should provide) and evidence of the donor’s ability (a statement showing sufficient funds.) Later, your lender will need copies of the check, deposit slip, and account statement to show the transfer into your account.
Assets Being Sold
Such as a car, boat, collectible, or anything of value you are selling, require proof of ownership (such as registration or title) and evidence of value (blue book value or appraisal.) After the sale, provide copies of the receipt and the check and deposit slip showing the transfer of funds into your account.
Other Examples
Include loans from employers or against retirement savings, grants, inheritances, proceeds of sale from other property, loan paybacks and winnings. Be prepared to show the source of funds, evidence of transfer into your account, and any supporting documentation of value, terms, service provided, etc.
TIP
If you have time and want to minimize paperwork, consolidate all funds into one account at least two or three months before you anticipate closing on your new house. Save any and all evidence of the transfer and deposits, and keep activity to a minimum.
Top Ten Tips for 1031 Exchanges
The 1031 Exchange is slowly making its way into daily conversation by Realtors, title companies, and investors. Please keep in mind that Section 1031 isn’t restricted to Real Estate but this is where most of the discussion takes place.
Although most sales are taxable as sales, if you use 1031, you’ll either have no tax or limited tax due at the time of the exchange.
In effect, you can change the form of your investment without cashing out or recognizing a capital gain. There’s no limit on how many times or how frequently you can do a 1031 exchange. Although you may have a profit on each swap, you can avoid tax until you actually sell for cash many years later.
In general, if you swap one building for another building, you can avoid depreciation recapture. But if you exchange improved land with a building for unimproved land without a building, the depreciation you’ve previously claimed on the building will be recaptured as ordinary income.
Such complications are why you need professional help when you’re doing a 1031 exchange. If you’re considering a 1031 exchange, or just curious, here are 10 things you should know.
1. A 1031 isn’t for personal use.
The provision is only for investment and business property, so you can’t swap your primary residence for another home. There are ways you can use a 1031 for swapping vacation homes.
2. Some personal property qualifies.
Most 1031 exchanges are of real estate. However some exchanges of personal property (say – a valuable painting) can qualify.
3. “Like-kind” is broad.
Most exchanges must merely be of “like-kind.” You can exchange an apartment building for raw land, or a ranch for a strip mall. The rules are surprisingly liberal. You can even exchange one business for another.
4. You can do a “delayed” exchange.
An exchange involves a simple swap of one property for another between two people;e. But the odds of finding someone with the exact property you want who wants the exact property you have are slim. For that reason the vast majority of exchanges are delayed. in a delayed exchange, you need a middleman who holds the cash after you “sell” your property and uses it to “buy” the replacement property for you. That middleman is called the “intermediary.”
5. You must designate replacement property.
Once the sale of property occurs, the intermediary will receive the cash. You can’t receive the cash or it will spoil the 1031 treatment. Also, within 45 days of the sale of your property you must designate the replacement property in writing to the intermediary, specifying the property you want to acquire.
6. You can designate multiple replacement properties.
The IRS says you can designate three properties as the designated replacement property so long as you eventually close on one of them.
7. You must close within 6 months.
You must close on the property within 180 days of the sale of the old property. YOu start counting when the sale of your property closes. If you designate a replacement property 45 days later, you’ll have 135 days left to close on the replacement property.
8. If you receive cash, it’s taxed.
You may have cash left over the intermediary acquires the replacement property. If so, the intermediary will pay it to you at the end of hte 180 days. That cash – known as “boot” – will be taxed as partial sales proceeds from the sale of your property, generally as capital gain.
9. You must consider mortgages and other debt.
One of the main ways people get into trouble with these transactions is failing to consider loans. Suppose you had a mortgage of $1-million on the old property, but your mortgage on the new property you receive in exchange is only $900,000. You have $100,000 of gain that is also classified as “boot,” and it will be taxed.
10. Using a 1031 for a vacation house requires caution.
You can sell your primary residence and, combined with your spouse, shield $500,000 in capital gain, so long as you’ve lived in your home for two years out of the past five. But this break isn’t available for your second or vacation home. Yes, taxpayers can still turn vacation homes into rental properties and do 1031 exchanges. Example: You stop using the beach house, rent it out for six months or a year and then exchange it for other real estate. If you actually get a tenant you’ve probably converted the house investment property, which should make the 1031 exchange OK.
In 2008 the IRS set forth a safe harbor rule.
To meet safe harbor, in each of the two 12 month periods immediately after the exchange: (1) you must rent the dwelling unit to another person for a fair rental rate for 14 days or more; and (2) your own personal use of the dwelling unit cannot exceed the greater of 14 days or 10% of the number of days during the 12-month period.
Glossary:
Relinquished property: The original property being sold by the taxpayer when making an exchange.
Replacement property: The new property being acquired by the taxpayer when making an exchange.
Qualified intermediary: Accommodator, facilitator, qualified escrow holder. A third party that helps to facilitate the exchange.