More Headaches For Rental Property Owners

More Headaches For Rental Property Owners
By Miguel de Arcos
Managing Director
Sperry Van Ness Florida

My accountant Vince Howard of Howard, Howard and Hodges called me the other day to forewarn me of an impending tax law change that will be effecting me and many of my clients that own rental property. He wanted to prepare me for the additional work and expenses ahead. He went on to say:

“Did you know that under the new Small Business Jobs Act, beginning in January 2011 taxpayers who own rental property(residential or commercial) will be subject to the 1099 reporting requirements. This change in IRS reporting requirements is a revenue raising measure designed to offset other small business tax incentives. The 1099′s will be filed in January 2012 but starting January 2011 you must begin tracking payments to vendors and having them provide completed W-9 forms to you for use in filing the 1099′s at the end of the year. 1099′s must be issued to an individual or LLC that provides services(including parts and materials) of $600 or more during the calendar year. Including but not limited to:landscape service, property management, pest control, pool service, cleaning services, repairs, etc.
If a 1099 is not issued for the services performed then you CANNOT take a deduction for the expense, in addition to the lost deduction you could be assessed late filing or failure to file information return penalties that can range from $30 to $250 per 1099. “

The government’s goal is cut down on tax abuses and better collect taxes on the often unreported sums that are exchanged every day in the industry. It is a valuable hole that needs to be plugged. The unfortunate consequence is that this will add significant cost and headache to the small investor who now has to track expenses, chase down vendors to collect w-9s and pay to hire an accounting firm to issue 1099s. With any luck, once this process is generally accepted in the industry, someone will figure out a way to streamline it. For now, it’s one more headache to deal with and more reasons to discourage small investors from putting money into real estate.

All the best,
Miguel de Arcos
www.facebook.com/svnParadigm

The Collateral Damage of Job Loss

Collateral Damage of Job Loss
By Miguel de Arcos
www.CREAdvice.wordpress.com

I often speak about the importance of job creation and job retention as the main catalyst for economic recovery here in the US. Jobs not only create flow of money, but having a job gives a person a sense of purpose and self esteem which can help change the outlook on the greater economy. The Orlando Sentinel ran a great extended article about the ripple effect or “Collateral Damage” of job loss in this economy. When we hear of one person losing their job, it saddens us. If we were to think that the ripple effect of every job lost causes another to be pushed that much closer to the same fate, it should terrify us. One job lost creates cutbacks on luxury items and at the retailers. Enough people cut back at the retailers, and they go out of business. Don’t forget about the hundreds of farm workers and manufacturing jobs that supply the retailers. The ripples can go on for a very long time.

This does not just effect the new or overleveraged businesses. The downturn of the economy has also effected previously successful 25 yer old companies with a viable business models. Check out the Orlando Sentinel article and video, Collateral Damage: When a Business Closes.

We should be pushing our leaders in government to forget about policies like healthcare right now and focus on the ever-important small business and job creating policies. I would venture to say that the majority of Americans, if asked, would prefer to have a JOB that affords them the privilege to choose their own healthcare options, then to be out of work, depressed and taking government handouts. It’s the spirit of the American working (wo)man that made the US the greatest Nation, nothing was handed to us before except the ability to work hard and create industry…
All the best,
Miguel

What Product Type Should I Invest In?

What product type should I invest in?
By Miguel de Arcos
Sperry Van Ness Florida
Managing Director

Investors often ask me, “What product type should I invest in right now?” My answer is somewhat ambiguous… While many agents have their own opinions and large organizations have specific wants, personally I wouldn’t say there is any one particular property type I like over the other. The trick is just finding the “best” deal for you or your group’s objectives.

We are having a harder time finding straightforward cash flowing opportunities despite the major distress in the market. The REO properties that come to market for the average investor, only make it that far because they were not an easy disposition. Instead, we are seeing well priced “creative” opportunities that really only appeal to local investors who can see the upside and past the lack of cash flow or low CAP rate.

We are having great success trading failed residential land deals to investors with a long term hold mentality. Right now zoned and approved land is selling for a fraction of what is was worth just 18 months ago. The challenge is that these need to be all cash deals. Banks are NOT handing out land loans. Be sure to do your homework though. You don’t want to find yourself owning land that is worth less in 5 years than what you paid. Amendment 4, if passed in FL this Novemeber, could greatly effect land values. If done right, you can realize unbelievable returns. Additionally, certain land plays take no effort in the upkeep, have affordable real estate taxes and carry a high yield when selling in 5 to 10 years when housing bounces back. Click here for a prime example.

At the end of the day, there is not one product type we prefer over the others. It really comes down to the opportunity, your comfort zone and your cash position. There are a lot of distressed sellers out there who need to be taken out of their positions. Don’t limit yourself. Let your Advisor show you ALL the opportunities out there.

Let me know how we can help,

Miguel

CRE Short Sales: The Exception Has Become The Rule

CRE Short Sales: The Exception Has Become The Rule
By: Miguel de Arcos
Sperry Van Ness Florida, Managing Director

In the not too distant past, a commercial real estate short sale was unheard of. It was an exception to a long standing trend that almost all commercial real estate was sold for more than it was purchased for or at least for more than the current note on the property. A short sale is very simple concept to understand, yet prior to 2007, not many had ever heard of one. A short sale is when the lender allows a property to be sold for less than the amount owed on a mortgage and takes a loss while a deficiency agreement may or may not be in place with the borrower. Today 80% of my office’s sale transactions involve distressed commercial assets such as a short sale or a bank owned property.

Why Is This Happening?:
The Great Recession has put considerable pressure on property owners and their businesses. One of the biggest expenses in any company’s budget is the real estate, so naturally that becomes a heavy anchor on a ship already taking on water. Downsizing existing space and relocating to less expensive space are typically the first options. When those options do not present themselves or are not taken advantage of for one reason or another, the only choice left is to sell the asset. But how can you sell the asset if it is not only worth less than what you paid on it, but worth less than what you owe the bank on it? We have entered a time when the question is not “How much profit can I get out of this sale?” The question “How can I best limit my losses?” It’s time to consider a short sale…

The Exception Becomes The Rule:
Why has a short sale been the “exception” all these years? Well for starters, the market has experienced a decade of positive property appreciation. There should never be an underwater property when properties only go up in value, right? Secondly, the economy has been strong and relatively liquid. Easy financing had created a strong demand. If a property owner needed out of an asset, they could move it in a relatively short period of time for at least what they paid for it. Today, we’re seeing some of the most sought after assets, sitting on the market for over a year with barely a nibble. Lastly, a borrower has to qualify for a short sale. Banks do not simply hand them out to anyone who is a little under water. After all, just because your property is currently worth less that you paid for it doesn’t mean that your obligation to continue making payments goes away. To qualify, you must be able to prove a significant hardship or insolvency that will be sustaining for the indefinite future. A short term run of bad luck will only get you a temporary loan modification(topic for another blog). Loan mods are great, but in a lot of cases, you are just prolonging the inevitable and giving the bank more time to investigate your financial situation so they know better what to do with you when your reprieve is over. Take control of your own destiny and develop a plan with your Advisor that is beneficial for you AND the bank.

The Process:
A typical commercial real estate transaction used to include 4 parts and aside from a reasonable inspection period, all parties knew their function and typically worked well to move the ball down the field. The parties were: The Seller, Buyer, Buyer’s lender and the Agent. In a short sale, there are at least 11 parties involved. The Seller, Seller’s Attorney, Seller’s Lender, Lender’s Attorney, Jr. Lien Holders, Association, The Buyer, Buyer’s Attorney, Buyer’s Lender, Title Insurance company, the Agent(s) and any other party that needs to be involved to work through a deficiency, forbearance agreement or title defect. Each one has a financial or legal decision to make, advice to give, or a loss to consider on this one devalued transaction. All require time and information from the others to make their decisions; It’s a virtual chicken and egg scenario. This is why most CRE brokers shy away from short sale business. It is simply too complicated, time consuming and futile in many cases; especially when the weeks of extra work generate less commission(values can be 50% of previous and fees are being slashed) than it would have not 2 years ago. Figuring out the puzzle is all the more reason to work with a distressed asset specialist. Someone who has navigated these waters many times before, knows the banks and the tactics to advance the process, know when efforts are futile and when a different stategy may be necessary.

Short Sale vs Foreclosure:
I know the process can be frustrating, but let me assure you that giving up and allowing the property to go into foreclosure is making a bad situation worse. Working with your bank to short sale or at least a loan modification is the significantly lesser of two evils for you AND for the bank. You should consult with your attorney and CPA, but in most cases here are some of the benefits: Less of a hit to your credit score; default comes off your credit report sooner; the ability in certain cases to work out a deficiency agreement for less than the full amount owed. It all saves considerable expenses and time as well as foreclosure stigma thus the motivation for the bank.

We have a saying around the office that “Hope is not a strategy.” Despite your situation, contact a specialist to help you determine the best go forward strategy so you can limit your losses and the effect to your credit. Simply ignoring the issue or hoping market conditions get better is not wise. We are in for this market for foreseeable future…

All the best,

Sperry Van Ness and Social Media

Please take a moment to view this new video about Sperry Van Ness and our committment to Social Media!

All the best,

Miguel de Arcos

Video: 2010 SVN State of the Union Highlights

Please take a moment to view this short video showcasing some of the highlights from the 2010 Sperry Van Ness State of the Union Address.

All the best for the remainder of 2010!
Miguel

The Great Thaw

The Great Thaw
By: Miguel de Arcos
Managing Director
Sperry Van Ness Florida

I am asked almost daily the same question, “How’s business?” Whether it’s a peer, client, friend or someone I just met, once they know I am in commercial real estate I instantly become their barometer for the economy. Some genuinely want to know, but most are looking for a glimmer of hope that they can take home to help sleep more soundly.

My standard answer is “Our activity has picked up immensely in the past 4 months. In fact, I have not been this busy since the 06/07 boom years.” I then start my next sentence with “unfortunately” and you can almost hear their bubble of hope bursting. “Unfortunately, I cannot say we’re so busy for positive economic reasons, but because banks are starting to work through their balance sheets, agree to short sales, take back non-performing assets and selling their REOs.” 80% of our workload is from the sale of distressed assets like short sales and bank owned properties(foreclosures.) The other 20% is leasing.

Banks were frozen solid in 2008 and 2009. It was a virtual Ice Age with no lending, no loan workouts and no selling of the troubled assets. Everything was just frozen. In an economy based on credit and moving money around, it had devastating consequences. Industry wide sales volume was down close to 90% across the country. While distressed asset sales surely mean unpleasant stress to the property owner(a topic for another time), there IS a positive outlook!

The “Great Thaw” has begun and there is evidence. The proof of the end of the commercial real estate ice age are the assets that died before or during the freeze-over and are now starting to be uncovered as the snow melts. Those dead assets are like contaminated carcasses that must be cleared out to make room for new growth.
It is obvious to anyone that when an economic engine is fed by the constant flow of financing and credit from banks, and those banks freeze up, many will starve to death.

In order to help the banks, we need to work with whatever user, vulture firm or investment group it takes to buy those undesirable assets. As banks finally start clearing out their balance sheets from many of the casualties of the deep freeze recession, they will begin lending again and our free-flowing credit based society can get back to some sense of normalcy. We are starting to see this in small doses already. As an example, my firm has closed 6 bank owned or short sale commercial properties in the past month, with 3 more in contract. In every occasion, a once vacant, unsightly blight on the neighborhood is now working to put a solvent user operator in its place. As I tell most of my clients, “Don’t worry about how the discounted sale price negatively affects you(or your comps). Think about how a stabilized and operational property positively affects the success and sustainability of you and the business community.” Activity breeds activity and gets the economy flowing.

Hopefully we have all learned a lesson in credit responsibility and over-leveraging so we won’t allow ourselves to be caught so unprepared next time. The first true signs of recovery are here, but the “Great Thaw” will take time…

Watch my newest video: Commercial Real Estate Guidance

The Socio-Tech Leap – THEY WON’T UNDERSTAND YOU!

The Socio-Tech Leap – THEY WON’T UNDERSTAND YOU!
By: Miguel de Arcos

Hot off the wire, Facebook announces that they have hit 500 million users(that’s more than the entire population of the United States!). Forget the fact that we now have another college aged billionaire, this is concrete proof that social media is the new communication method. I still know MANY business people that are social media hold outs. They “don’t like it”, “don’t trust it”, “don’t have time for it.” To each his own, but with the monumental leaps that technology is taking every 2 years, a business person will be left in the dark trying to figure out how to get ahead and how to get people to hear them.

Just yesterday one of America’s most highly sought after female speakers, Terry Sjodin, gave an excellent private presentation to the Sperry Van Ness Florida team about persuasive presentations. She has trained and motivated thousands of people from all over the world. Her first task was to help us understand our audience by describing the 3 generational personality types. The Boomers, don’t trust computers and want to do most everything in person; the Gen Xers, are skeptical of everything and need hard facts and regular communication to trust you; and the Millenials. They are the overstimulation generation, hardwired into the internet prefering to receive all their information wirelessly through the web, text, email and social media sites(ALL AT THE SAME TIME!) It is almost like they have developed a new language made up of short hand abreviations, concise thoughts limited to 140 characters and assimilating multiple streams of info from friends, associates and news sites.

And by the way, the Milenials will outnumber the baby boomers as the largest generation in the next 5 years. 98% of all age appropriate millenials have a social networking presence. We all know, that in person interaction is still important, but the point is, that the business people of tomorrow will be doing things much different than the “traditional” way of the last 50 years.

If you really look back at the last 5 years, you will notice a giant socio-tech leap forward into the wireless technology era. Wireless internet is everywhere(including airplanes); streaming video cameras and TV on cell phones; large desktop computers condensed to an light weight iPad; millions of apps that put the world in your hands; hand held smart phones that could redirect the space shuttle if programed correctly; and perhaps the most astonishing is the unbelieveable ease of use with these incredible small but powerful tools. Tap or flick the screen and your in business. I remember how difficult programing a VCR used to be…

You cannot stop a train once it has left the station, and this social media train is half way across the world already. As a business person if you don’t adopt the new social media paradigm into your daily lives, you will be in the minority and the new socio-tech generation soon WILL NOT UNDERSTAND YOU!

PS- please follow me on Facebook, Twitter and LinkedIn so I don’t get left behind….

Get to know SVN Accelerated Marketing

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What does it mean to accelerate? Sperry Van Ness Accelerated Marketing Advisors are America’s leading providers for special asset solutions. Our team is fully integrated with Sperry Van Ness International which enables our clients to capitalize on local market knowledge with product specialists who augment our commercial auctions and sealed bid initiatives. The team is designed for:

» speed
» transparency
» maximizing valuation
» open competition
» shorter transaction lifecycle
» accelerated closing
To learn more visit www.SVNauctions.com or email your questions to MdeArcos@svn.com.

Midsummer Proof That Private Jobs Beat Government Jobs

Midsummer Proof That Private Jobs Beats Government Jobs
By Miguel de Arcos Managing Director
Sperry Van Ness Florida Commercial Real Estate Advisors

Borrowing from Chief Economist Dr. Sam Chandon’s Midsummer Employment Outlook we are finally generating the proof to the notion we have been shouting from the rooftops for close to a year now; The stimulus money spent on job creation was spent incorrectly! ” The Bureau of Labor Statistics released the preliminary Employment Situation report for June last Friday. As expected, non-farm payrolls fell as 225,000 temporary Census workers completed their work terms. Across the public and private sectors, non-farm payrolls dropped by 125,000 jobs; the sharp decline in government employment was partly offset by a net increase of 83,000 private sector jobs.” If it is still unclear, the jobs the administration has claimed to have created were temporary(roads, census) or simply more government infrastructure. While those temporary jobs are somewhat needed, it is irresponsible for the administration to claim “success” in stimulating the economy when those jobs had a 6 to 12 month shelf life. The other foolish move is creating thousands more government infrastructure jobs in a failing economy. That is a kin to a private company hiring 100 new employees as they are about to declare bankruptcy… It just doesnt make sense and sets the american public and investors up for failure as they start to bet on recovery.
Private jobs are sustainable. Private jobs create tax revenue to support the needed government programs. Private jobs create confindence, puts savings in the bank and food on the table. Invest in business, not government!