Brent Bell, CRS, e-PRO, GRI, Hartford County

Currently, there are 83 3-family houses for sale in New Britain, Connecticut (as of 2/21/2008). Listed prices range from $345,000 to $138,000, with the average price (median) at $259,000.

In 2007, there were 76 sales of 3-family houses in town. Buyers paid prices ranging from $335,000 to $120,000 with the average price paid (median) at $245,000. Both owner-occupants and investors purchased these versatile properties. It is still possible for an investor in town to realize positive cashflow from the careful purchase of a 3-family house in New Britain!

For comparison purposes, there were 125 sales of 3-family houses in 2006. Buyers paid prices ranging from $495,000 to $57,500 with the average price paid (median) at $232,000.

Resolve to purchase your first 3-family in 2008; begin building your real estate portfolio while the interest rates are still low!

LAST YEAR -

In February 2007, the citizens of West Hartford were concerned. They received new assessments from the town as a result of revaluation - many people seeing a doubling of their assessment (The state requires assessments every four years, but West Hartford managed a seven-year hiatus, from October 1, 1999 to October 1, 2006).

The town cautioned that you could not apply the 46.19 mill rate to the new assessment. A significant growth in the town's grand list would mean a lower mill rate. After state-level political change to allow a phase-in of up to 5 years of the new assessment, West Hartford elected to limit the first year change in assessment to a maximum of 25% more than the October 1, 1999 assessment level, and the new mill rate decreased to 38.63. On average, homeowners experienced a 6% increase in their tax bill.

BACKGROUND -

Town expenses in Connecticut are funded primarily by local tax revenue, with the minority of funding picked up by the state and almost none from the federal government. Last year, the "average payment" from towns was 66% of the total. However, in a town like West Hartford, our local funding is at 85% of the total bill (in year's past, we have paid as much as 89%)!

This bill is paid for by us through taxes on our motor vehicles, our homes and the local businesses. On average, West Hartford determined that the value of commercial property increased 46% over the seven-year period (it would be interesting to see if tenants in West Hartford Center are only paying 46% more in rent than they were in 1999?!). West Hartford decided that the value of residential property increased 77% over the same period. The tab for motor vehicles is simpler, using the blue book value for each vehicle, based on model year...

Therefore, the two factors that influence residents' tax bills are:

1) What is the state's "FAIR SHARE" (debated for decades & not within our direct control - speak with your state representative and senator)?

2) Is the town ready to improve their evaluation of the "FAIR SHARE" for commercial land owners? (This is an issue which has been brought to Mayor Scott Slifka's attention repeatedly over the past four years, but he may need to hear it from more taxpayers - this issue is within the town's control and could be addressed much faster than issue #1 above).

2008 EXCITEMENT

The article in today's Hartford Courant (February 19, 2008, page B3) (Why do these stories always end up being published during school vacation week??) is entitled "Phase-In of Revaluation Could End." The good news (let's start positive) is that ending the phase-in will cause a larger drop in the mill rate. For people who have expensive cars and have two-year leases in town, this is a big plus. For people who have new homes in town, this may be a plus. However, for most homeowners who saw the limit in the phase-in helping their tax burden last year, removing this limit could mean a large tax increase in July!

CHALLENGE TO OUR WEST HARTFORD TOWN GOVERNMENT

Prior to the budget presentation next month, the taxpayers need some data from the town database. Some facts will make this debate more real and help us to understand our neighbors' plights. Show us the change in taxes based on the current phase-in and based on elimination of the phase-in. This information should be published no later than March 1, 2008!

Let's publish some specific examples of the tax change scenarios:

1) Choose a home in Elmwood which had its assessment double.

2) Choose a home within 2 blocks of West Hartford Center.

3) Choose a home west of Mountain Road.

4) Choose a home north of the University of Hartford.

5) Choose a home east of Quaker Lane.

Also, the town website is missing any explanation of the assessment phase-in (this omission is one year late in being addressed-let's move on this now - take advantage of the school vacation week peace & quiet to improve our customer service)!

(P.S. For those of you following this closely, if there is a year to eliminate the phase-in it is one more year down the road - when Blue Back is completely built and has reached its peak in terms of assessed value!)

How often have you heard a seller remark, "I haven't raised their rent in 5 years because they are such GOOD Tenants! They always pay their rent on time and never give me any hassle." The tenant version, "The landlord hasn't raised the rent, so we hate to move, but he is never here and never fixes anything (except for sending the nice plumber out 3 times to fix the same leak under the sink (which still leaks)."

There are three stages in the life of an investor- youth, middle age, and past their prime. These stages are psychological, although they play out in the physical appearance of the investor's properties!

In the YOUTH stage, investors are on a steep learning curve. They acquire their first three properties in this stage and quickly learn the challenges of tenant management and contractor management. Their buildings improve in appearance, both in terms of new windows and fresh paint as well as neater overall appearance and fresh landscaping. Rents are increased to market level fairly quickly, which causes some tenants to leave (usually replaced by stronger tenants who take better care of the property (don't forget those credit checks). Investors are enthusiastic, eager to learn and willing to invest extra energy to increase the value of their investment. On the down side, investors can make expensive mistakes during this period due to their lack of experience. For the average investor, this stage lasts about 5 years. For this reason, banks and insurance companies often save their best rates for investors who can demonstrate 5 or more years of owning multi-family property!

ADVICE for YOUTHFUL Investors: Use some of your energy to ask the experts (realtor, other investors whose buildings you admire, attorney & CPA (who have successful experience with multi-family property) and form good business habits which fit your style! Asking questions of the right people will save you hours of time and thousands of dollars!

In MIDDLE AGE, investors are adept at fitting their new building acquisitions (usually 1 or 2 each year) into their management program. To the casual observer, it seems that less than 6 months after they have acquired a new property it looks and feels like their others in terms of condition, landscaping, strong tenants. They practice sound tenant management, with consistent bonuses for referring other good tenants, pay annual security interest payments to tenants as they come due, communicate clearly with tenants and make every unit under their management a little more attractive every year! Rents increase with the market each year (usually by $25 to $50 per month). These increases fund inflationary increases in taxes, insurance and water bills, plus needed capital improvements. Since processes are streamlined, these investors make more $$$ per unit or building with less energy invested. They keep their eyes open for new properties and may consider using 1031 Exchanges to weed out properties with less future potential and purchase those which fit their ideal portfolio better! For a devoted investor, this stage can last 50 years. A casual investor may never make it to this stage, but go straight from YOUTH to PAST PRIME!

ADVICE for MIDDLE AGE Investors: Use your trusted experts to evaluate your assets and fine-tune your portfolio. Just as a strong realtor knows that some clients are too draining to work for, you need to recognize if one or more of your properties is too draining to remain in your portfolio. To make investing fun, you need to work with positive people, and tenants who will work with you. This is a long-term strategy. You can't afford to have any one investment sap your endurance. Began planning in this stage for your next life phase (perhaps a 1031 exchange of 20 3-families for one 20-unit apartment building in a warmer climate?). The current tax code provides great flexibility and excellent tax-deferral potential!!!

The PAST PRIME stage is the one too many investors without a plan fall into. The mortgage may be paid off or almost paid off, so they keep the rents low for tenants (after all, they only have to pay taxes, water and insurance). With low rents, the property will not fund capital improvements. You know what these properties look like... little landscaping, older roofs (with 2-3 layers of shingles), abandoned cars in the back yards, 3 dumpsters of prior-tenants' possessions in the basement, older heating systems, leaking pipes, old wallpaper, at least one unit is behind on the rent or vacant... Strong investors never enter this stage, other investors may be trapped here for a decade...

ADVICE for PAST PRIME investors: You have given 40% of your cashflow to your tenants and will give 30% of what could have been your equity to the new investor in this property. You need to end your pain and stop the decline in your investment's value. Call for FIRST AID!!!

Sometimes investors, in their quest for the "best price," lose sight of their long-term goal. For most investors, a very low vacancy rate, a strong pool of potential tenants, and the ability to raise rents more than average every year are all important priorities as they strive to improve the performance of their investment.

Here are some reasons tenants have given for choosing to rent my clients' rental units:

A) I can watch my middle-school student make it to school from my back window!

B) There is parking in back for both cars, so we don't have to park on the street!

C) I know this landlord will address any problems within one to three days!

D) I don't drive; this 3-family is on the bus line!

E) There is space in the backyard for my daughter to play!

F) This is a quiet neighborhood; I need to sleep during the day!

G) The washer/dryer are in my unit; I don't have time or energy for going out to do the laundry!

H) The new windows will keep my heating costs lower!

I) We can walk to the corner store and the park from here!

J) There are three bedrooms, so everyone has enough space!

K) This is a safe neighborhood!

You get the picture. Location, location, location because you can't change it! You can improve condition and management of any building to add value, but you get the best return if you put your efforts into a good location!

Oh to have a crystal ball! The challenge with trying to buy at the bottom of any market (real estate, stock or any other commodity) it that we only know it hit bottom when the market is on its way to recovery. So the real question for a buyer is: Do I want to buy when the market is declining or recovering?

A declining market has too many sellers for the number of buyers. Sellers are more flexible on price and terms (since they are not sure where the market bottom will be), interest rates are often more favorable, and the buyer has the luxury of being able to think for a minute or two about their top choices before making a decision, often avoiding a multiple offer scenario.

A recovering market has more buyers entering every day. Sellers sense this increased demand and become less flexible on their prices and terms. The interest rates creep up (lenders are sensitive to more buyers out in the market as well), and the best properties are back to selling in multiple offers, leaving the buyer to choose between quick decision-making or losing out on the hot properties.

Although over the long term, owning real estate has been very favorable as a protection against inflation, there are core reasons that people choose to own instead of renting:

1) Protection from rental increases (with a fixed-rate mortgage, you can predict your expenses.

2) Freedom from landlord rules about pets, paint colors or how many cars you can park.

3) Freedom to improve your property to your taste.

4) Protection from being asked to leave (landlord sells the building or needs a place for a relative to live).

5) Generous tax benefits from the US government to encourage property ownership.

The savvy buyers know that a declining market is their best chance for a great value, but for the 5 reasons listed many buyers don't always want to wait...